A coalition of 50 labor organizations, consumer groups and the “Debt Collective” sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian College schools. The for-profit institution recently closed its 28 schools and filed for bankruptcy, mid-semester.
As Breitbart News reported in “Kamala Wants to Cancel Billions in Corinthian College Student Loans,” California Attorney General Kamala Harris’ refusal to grant buyers a release from liability for past actions blocked Corinthian College’s “advanced negotiations” with several parties to sell its remaining schools and help 16,000 active students continue their education.
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 through a “closed-school loan discharge.” The rule provides students with debt relief if they cannot complete their education because their school has been closed.
But “closed-school loan discharge” means former students are not eligible for debt relief, and students that transfer completed class credits lose their eligibility for any debt relief.
When Harris announced her action on May 3, no politician had ever torpedoed a school as a strategy to wipe out some of the $1.3 trillion in student debt. Although the total for Corinthian student debt outstanding is not known, according to the latest SEC filings, their schools generated $1.2 billion in tax-payer-backed student loans last year.
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, including more than 100 former Corinthian students who are also refusing to pay back their loans in protest.
The National Consumer Law Center said the Department of Education had the authority to forgive the loans because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.
But almost nothing is known about the “defense to repayment clause” that may be applicable for closed-school loan discharge. The Education Department has not specified how defense to repayment works or whether it has ever been used successfully in the past.
“Our administration is committed to making sure students who have been defrauded or whose schools closed receive every penny of debt relief that they are entitled to,” said U.S. Department of Education Assistant Press Secretary Denise Horn. “We will make that as easy as possible for students, and we will hold institutions accountable,” according to Reuters.
Corinthian operated the Heald College, Everest and WyoTech schools and offered degrees in health care and trades. In 2014, it sold 56 campuses to Education Credit Management Corp, a company known for fighting attempts to discharge student loans in bankruptcy. Corinthian’s Chapter 11 bankruptcy Statement of Financial Affairs stated that the company had $143 million in debt and only about $19 million in assets.
Earlier this week, top current and former Corinthian executives disclosed in court filings that they were seeking to collect on liability insurance policies to pay for their mounting legal costs stemming from criminal and civil actions.
With virtually no assets left and an expensive Chapter 11 bankruptcy filing, taxpayers may lose hundreds of millions of dollars on California Attorney General Kamala Harris’s refusal to allow Corinthian Colleges to sell their 28 remaining schools.