After the collapse of Corinthian Colleges, a for-profit college chain that eventually became a symbol of fraud in the world of higher education, there’s been a spike in what is termed a “borrower’s defense.” Now, almost 12,000 students are asking the federal government to eliminate their college loan debt based on the fact that their schools closed or made false claims about job prospects.
Anne Flaherty of Associated Press reports that students who believe they were victims of fraud can apply to have their loans discharged. In the past 40 years, there have been about five such cases, but since the Education Department’s announcement in June that the debt-relief process would become easier, approximately 4,140 cases have been filed.
Officials say another 7,815 Corinthian students have filed for debt-relief and that 3,128 of these claims have been approved, adding up to about $40 million in student loans.
The plan allows students who attended the now-closed school to plead for debt relief, and it streamlines the process for those whose schools were sold and who believe they were fraud victims. In the past five years, about 350,000 students attended Corinthian.
The closings of Corinthian Colleges, Inc. included its Everest University, WyoTech, and Heald College campuses. At a Boston University event this week, Massachusetts Attorney General Marua Healy and Sen. Elizabeth Warren called on the Department to excuse victims of the now defunct college of their loan payments. The event itself was to help students receive assistance in enrolling in more affordable repayment plans and to apply for cancellation of their federal student loans, writes Ashlee Kieler of the Consumerist.
“For too long, predatory for-profit schools, supported by taxpayer dollars, have enriched themselves while loading up students with unaffordable debt,” AG Healey said. “Students deserve better. If a school breaks the law, Senator Warren and I believe they must be held accountable. We want to help get these students the relief they deserve.”
Now, the Department is working on overhauling its loan forgiveness program to make it easier for students to have their federal loans discharged if the school they attended was found to have used illegal or underhanded tactics to lead them to borrow money for their education.
The bad news, reports Katie Lobosco of WSBT-TV, is that even if the students’ debt is wiped out, they could end up with a bigger tax bill. Most of the time, forgiven debt is treated as taxable income. But in California, a new law could exclude the amount of the student’s loan discharge on state taxes. Sen. Janet Nguyen (R-34th District), who had three of Corinthian’s failed schools in her district, introduced the law. It would take federal action to forgive students’ federal taxes and state taxes if they lived outside the state.
This week, California Senators did, in fact, unanimously approve excluding forgiven debt from students’ gross income, according to the Associated Press. Nguyen’s SB150 will assist students who were not able to complete their education at a for-profit college, many of whom are from low-income backgrounds. Now the measure will go before the Assembly.
The California general fund stands to lose $34 million this fiscal year because of the tax break, reports the Franchise Tax Board.