The Department of Education announced Monday that it is implementing a plan to forgive as much as $3.6 billion in student loans given to students attending schools affiliated with the defunct for-profit college chain Corinthian Colleges.
Corinthian was once one of the biggest players in for-profit colleges, but abruptly fell apart in 2014 amid accusations that it was inflating graduates’ job placement rates and attempting to defraud the federal government. In the course of the investigation, Corinthian lost the right to draw federal student loans, and since those loans provided the vast majority of its revenue, the college swiftly fell into bankruptcy. That left tens of thousands of students out in the cold, while the college itself has become a punching bag for those critical of alleged predatory behaviors by for-profit education companies.
Since then, many have called for the government to offer loan forgiveness for students they say were exploited by Corinthian. Notably, about 200 former students have taken part in a “debt strike,” refusing to make any payments on their student loans. The delinquent borrowers claim they were tricked by false job placement rates and also were never notified their schools were under a federal investigation placing them at risk of closure.
Ordinarily, student loans cannot be discharged in bankruptcy or forgiven without spending at least a decade on a federal repayment plan. Exceptions, however, exist for fraud and for schools that shut down. Previously, only a few thousand students still attending Corinthian when its last campuses closed in April were eligible to have their student loans forgiven. Under the newly-announced plan, any student attending a Corinthian-affiliated school after June 20 of last year will be eligible, ballooning the number of people eligible for forgiveness by tens of thousands.
The overall cost of this forgiveness could be quite high. Overall, $3.6 billion in federal student loans were given to 350,000 Corinthian students since 2010. While it’s very unlikely that all of those students will seek or qualify for forgiveness, Secretary of Education Arne Duncan told reporters in a conference call Monday that the Department has no way of knowing just how high the forgiveness figure will go. A “special master” will be in charge of overseeing the process of determining what students qualify, but any Corinthian student who applies for forgiveness will be allowed to cease payments while their case is being considered.
Such a large-scale forgiveness of student debt is unprecedented in U.S. history.
“No previous administration, no state and no Congress has ever done this,” Duncan said. Nevertheless, some activists say it isn’t enough. The Debt Collective, which organized the Corinthian debt strike, says the Obama administration should go much further and totally forgive the debts of every single Corinthian student, even those who have graduated or successfully transferred credits to another school.
“The legal and most painless possible process for students is no process—they deserve an automatic discharge of their debts,” the Collective said in a blog post. “The Department of Education’s ‘solution’ is a bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape.”
On the other side of the issue, some Republicans have criticized the new plan for going too far, arguing that easy forgiveness is setting a bad precedent that puts taxpayers on the hook for the wrongdoing of private colleges.
“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” Sen. Lamar Alexander, chair of the Senate’s education committee, said in a statement sent to The Daily Caller News Foundation. “If your car is a lemon you don’t sue the bank that made the auto loan; you sue the car company?”
This report, by Blake Neff, was cross-posted by arrangement with the Daily Caller News Foundation.