After California Attorney General Kamala Harris’ refusal to grant a release from liability for past actions blocked Corinthian College’s “advanced negotiations” with several parties to sell its remaining schools, which would have helped 16,000 active students continue their education, 28 schools shut down last week and the company filed for Chapter 11 bankruptcy protection Monday, May 3.
Harris said that shutting down the for-profit school was in the best interest of the 16,000 Corinthian students because she may be able to cancel their student debt.
According to the Corinthians’ latest SEC filings, their schools generated $1.2 billion in tax-payer-backed student loans last year.
Harris stated that she may be able to wipe out student loans through a “closed-school loan discharge”, a rule that provides students with debt relief if they cannot complete their education because their school closed. But “closed-school loan discharge” means former students are not eligible for debt relief, and students that try to transfer with completed class credits lose their eligibility for any debt relief.
Liberal Democrat activists and union activists argue that students who dropped out and left Corinthian Colleges before the shutdown should also be eligible for closed-school loan discharges, because they were lured there with false promises and have worthless degrees.
Senator Elizabeth Warren (D-MA), a former Harvard Law School professor, and the “Debt Collective,” part of an effort organized by an Occupy Wall Street offshoot focused on student debt, want Kamala Harris to pursue “defense to repayment claims” against the federal government on behalf of the Corinthian College students.
According to the “Debt Collective” website, “If you owe the bank a thousand dollars, the bank owns you. If you owe the bank a trillion dollars, you own the bank. Together, we own the bank.” The Collective claims they represent $180,170,071 of loans from borrowers that are committed never to make a loan payment. More than 100 former Corinthian students are also refusing to pay back their loans in protest.
Almost nothing is known about the defense to repayment clause: the Education Department has not specified how defense to repayment works or whether it has ever been used successfully in the past, and would not respond on the record to BuzzFeed News’ questions about its usage. The Education Department also has not responded to a four-months-old Freedom of Information Act request by the New York Legal Assistance group meant to gather any possible shreds of information about the clause, its usage, or its history.
But a spokeswoman for Public Counsel, the pro-bono firm leading the student legal effort, told MarketWatch that they hope the bankruptcy court will eventually allow filing their motion with the state court. “Corinthian can run, but it cannot hide.”
The shutdown and bankruptcy caps a two year saga led by Kamala Harris that included lawsuits, fines and probes, alleging Corinthian used inflated graduation and job placement statistics to convince students to take on high-cost loans to attend schools.
Liberal Democrats lobbied for the Obama Administration to nationalize the student loan program, and incentivized rapid borrowing growth to almost $1.3 trillion–about the same amount as a whole year’s federal tax payments. The Federal Reserve Bank of New York estimates that 40 million Americans have racked up student loans with an average outstanding balance of $29,000. The Fed has also determined that “widespread failure to repay is a problem,” since just 37 percent of all student borrowers are making regularly scheduled payments.
By driving the supposedly evil for-profit Corinthian Colleges into bankruptcy, Attorney General Kamala Harris has aligned herself with President Obama’s Student Aid “Bill of Rights” announced on March 10, 2015. Harris knows the left is looking for a champion to argue for “The Year of the Jubilee” to release all student indebtedness. Corinthian Colleges could make her that champion.