Q&A: 'Corinthian 100' strikers put spotlight on Education Department's loan discharge policies

Markets Associated Press

Students from the troubled Corinthian Colleges are getting support from state attorneys general and U.S. senators in their quest to have their federal student loans forgiven.

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The question is what comes next. Discharging the debt of all former Corinthian students could cost the federal government billions. And any action to help them potentially opens the door for other former for-profit students — or other unhappy borrowers — to seek similar relief.

Corinthian, a for-profit educational institution, nearly failed last summer amid fraud allegations. It agreed to sell or close its campuses under pressure from the Education Department.

Thirteen U.S. senators led by Sen. Elizabeth Warren, D-Massachusetts, have asked the department to "put teeth into its existing legal authority" to forgive the debt. Nine state attorneys general added to the pressure in a Thursday letter that declared "Corinthian took advantage of students who were trying to build a better life for themselves and their families."

Education Department officials say they are weighing their options. "These are tragic stories and I'm extraordinarily sympathetic and really want to do what is right and fair," said Ted Mitchell, the Education Department undersecretary.

Some questions and actions about the "Corinthian 100" and forgiving student loan debt.

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HOW BIG IS THE PROBLEM?

Corinthian was one of the country's largest for-profit colleges, operating Everest College, HealdCollege and WyoTech, online and physical campuses. About 72,000 students attended.

The Education Department said Corinthian failed to provide adequate paperwork and comply with requests to address concerns about company's practice, including allegations of falsifying job placement data in marketing and altering grades and attendance records. The schools also faced state attorneys general action in several states.

Students received $1.2 billion a year in federal loans in the final year the schools operated under Corinthian's banner, court documents show. But because of the time it takes to pay off student loans, billions more of outstanding loans likely has built up. The department says it's still calculating what it would cost to pay out claims.

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WHO ARE THE "CORINTHIAN 100"?

They are a group of 100 current and former students who are refusing to pay back their student loans. Each has amassed tens of thousands — even $100,000 or more — in federal and private loans in areas of study such as nursing and criminal justice.

Organized by the Debt Collective group, they say the department has failed to help them, even as it took action against their colleges.

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WHAT ARE STUDENTS' LEGAL RIGHTS?

Historically, the department has erred on the "side of not forgiving anything," says Ben Miller, a senior policy analyst at the New America Foundation and a former Education Department official.

Only under specific situations such as a school's complete closure or forged loan documents is there a systematic way to seek relief.

But many Corinthian students likely won't be eligible under the closure provision because the company is selling — not closing — many of its colleges under a deal worked out with the Education Department.

So, they're using a little known provision in the Higher Education Act called "defense to repayment," which says borrowers can fight collection efforts on federal student loans if their schools violated state law. Already, hundreds of former Corinthian students have submitted claims under this provision, using makeshift forms they've created.

The department says it hopes to address Corinthian borrowers' concerns within the next month. Previously, only about five borrowers had ever sought to use this provision, according to the department.

The state attorneys general have asked the department either to waive all student loans incurred by Corinthian students during the period of its colleges' alleged legal violations or set up rules to decide defense to repayment claims.

At least for the moment, students in states with attorney generals who have alleged Corinthian broke the law are likely in the strongest position.

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SHOULDN'T CORINTHIAN HAVE TO PAY FOR ITS OWN MISDEEDS?

Under Education Department rules, the company should be responsible for any cancelled debt — but Corinthian likely can't pay. Its stock is all but worthless, and most of the company's minimal assets have been transferred to a new manager who is shielded from liability.

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WHAT ABOUT CURRENT STUDENTS AT THE FORMER CORINTHIAN SCHOOLS?

Many are still accruing federal debt. The majority of Corinthian's students are at schools now being run by a nonprofit called Zenith Education Group, which is in turn owned by a nonprofit educational debt collection company.

The fate of Corinthian's schools in California is less clear; California attorney general Kamala Harris has refused to waive liability for Corinthian's alleged illegal behavior. That makes them less likely to be transferred to new owners — and more likely to close.

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WHAT ARE THE DEPARTMENT'S OPTIONS?

If it were to forgive the debt of Corinthian students, it would be potentially opening a multi-billion dollar can of worms. Would all past Corinthian students be eligible? Or, just those in states where attorneys general take action? Should similar relief be extended to students enrolled at other colleges alleged to have engaged in similar violations of the law?

Discharging the debt would essentially be an acknowledgement by the department that it allowed Corinthian to take advantage of students for years.

Aside from flatly cancelling the debt, another option would be to ease repayment terms and potentially waive the debt if former students' incomes can't support it.

Absent any relief from the department, the next step could be lawsuits.

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Follow Kimberly Hefling on Twitter: http://twitter.com/khefling and Jeff Horwitz at http://twitter.com/jeffhorwitz .