Government to Forgive $171 Million in Student Loan Debt

(Photo: Flickr, Creative Commons)

(Photo: Flickr, Creative Commons)

Mounting student debt is not a new topic in the United States, but the government footing the bill is — and for former students of the now obsolete Corinthian Colleges Inc., a total of $171 million in student debt will be written off by the government.

Corinthian, once one of the largest for-profit college chains, liquidated in bankruptcy in May 2015 one week after suddenly closing its doors. The schools shut down after claims that they were inflating statistics about graduates' career success. Although Corinthian denied the allegations, its fate was sealed. Many students were left questioning their degrees or were without a degree at all since the schools shut down suddenly.

After pressure from student advocacy groups, the Education Department turned to an obscure law known as "borrower defense," according to the Wall Street Journal's Josh Mitchell. The law forgives debt if students are found to be defrauded or for students whose schools close prior to graduation. 11,173 former Corinthian students will be affected.

In late June, action was prompted by a report from Joseph A. Smith Jr., the special master hired by the Education Department to investigate claims. The government agreed to pay $171 million to 11,173 former Corinthian students who owed an average $15,280 each, according to the report. Two-thirds of those borrowers won discharges because their schools had closed prior to graduation. For the other third, federal investigators found that former students had been defrauded by the school.

Corinthian, which included brands such as Heald, Everest, and WyoTech, was one of the many for-profit schools that popped up in the early 2000s. The schools, many of which were in California, had few admission requirements, yet they collected hundreds of billions of dollars from students who were attracted to the new education model. The source of this tuition money was largely federal grants and loans. Since the allegations, enrollment of for-profit schools has fallen.

As the government continues its investigations of for-profit schools, this bill may only get bigger for taxpayers. The government is still looking through thousands of other claims, and additional relief may be issued in the future. According to Smith's report, as of June 24, 26,603 borrowers have filed claims under the borrower defense; 87 percent of those students attended Corinthian schools.

Smith was appointed to the position of special master a year ago in order to make the process of filing claims more efficient. Since his appointment, he has provided periodic reports on the status of the borrower claims, as well as a summary of the Department's approach. Established in February, the Department's Student Aid Enforcement Unit, which is located within Federal Student Aid (FSA), will continue with Smith's work overseeing the borrower defense program and providing progress reports.

"I am confident that the creation of the Enforcement Unit and growth of the borrower defense program will go a long way toward ensuring that the federal student loan program does what it was designed to do: help students build a better life for themselves, their families, and the nation," Smith said.

Smith, who has recently stepped down from the position of special master, has assisted in creation of a "universal" borrower defense application form to make it easier for borrowers to make claims.

"You shouldn't need an attorney to seek the relief you're entitled to—it should be as transparent and simple as possible," Ted Mitchell, Under Secretary of Education, said in a press release. "Using valuable input from student advocates, we created this form to simplify the process for borrowers who believe they were defrauded by their school. We hope that borrowers and advocates will share their thoughts on how we can make it even better."

Currently, the Education Department is investigating at least one other chain of for-profit colleges due to allegations of unethical marketing and recruiting — ITT Technical Institutes, a for-profit brand that has 43,000 students across the nation. ITT denies any wrongdoing.

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