As college graduates wait to see whether President Joe Biden will wipe out some of their student loan debt, his administration is taking a more limited step to address a fraud scandal at Corinthian Colleges, a for-profit chain that collapsed nearly a decade ago.
Anyone who enrolled in the company’s schools will have his or her federal student debt erased, clearing away $5.8bn for more than 560,000 borrowers — the largest single loan discharge ever, according to the Department of Education.
Vice President Kamala Harris on Thursday called it a milestone in “a journey for justice for everyone who was defrauded” and will “put real money in the pockets of real people.” She made only a brief reference to lingering questions about the next steps on student loan debt. “As a nation, we have a lot more work to do on these issues,” she said.
Biden, as a candidate, promised to address the matter if elected, and he has expressed interest in canceling $10,000 per borrower. There’s been no word on how Biden will handle the issue, even with pressure building on him. The White House has suggested there would be some kind of income criteria that would prevent high earners from benefitting.
Debt payments were paused by President Donald Trump near the beginning of the coronavirus pandemic, and Biden has kept the freeze in place while considering a more permanent solution.
Any decision carries political risks. Republicans accuse Biden of plotting an election-year giveaway. Activists are pushing him to cancel at least $50,000 per borrower, and anything less could disappoint them.
“President Biden, canceling $10,000 in student debt is like pouring a bucket of ice water on a forest fire,” NAACP President Derrick Johnson said in a statement. Black students and other students of colour are more likely to take out loans to pay for college.
The announcement about Corinthian, which operated from 1995 to 2015, sought to close the books on one of the most notorious cases of fraud in American higher education. At its peak, Corinthian was one of the largest for-profit college companies, with more than 100 campuses and more than 110,000 students at its Everest, WyoTech and Heald schools.
When Harris was California’s attorney general, she worked with the Obama administration to uncover how campuses were falsifying data on the success of their graduates. In some cases, schools reported that students had found jobs in their fields of study even though they were working at grocery stores or fast-food chains.
Students told investigators they were often pressured to enrol with promises of lucrative employment, only to end up with huge sums of debt and few job prospects. Federal officials found that the company falsely told students their course credits could be transferred to other colleges.
Harris said Corinthian tried to attract students who were single parents or unemployed and looking to improve their lives.
“The company believed they could get away with it because, as predators are wont to do, they targeted people who they assumed wouldn’t fight back,” she said.
Tens of thousands of former Corinthian students were already eligible for debt cancellation, but they had to file paperwork and navigate an application process that advocates have said is confusing. Now, the relief will be made automatic and extended to additional borrowers.
Those with a remaining balance on their Corinthian debt will also get refunds on payments already made, department officials said. But the action does not apply to loans paid in full. A spokesperson for the Department of Education did not respond to a question about why that decision was made.
The Corinthian scandal led to a federal crackdown on for-profit colleges, and the Obama administration promised to forgive loans for Corinthian students whose programmes lied about job placement rates. That administration went on to expand a process known as borrower defence to repayment, which allows any defrauded student to apply for debt cancellation.
The Trump administration drew criticism when it started granting only partial loan cancellation to defrauded students, giving lower levels of relief to those with higher incomes. Former Corinthian students sued, and a federal judge halted the policy and ordered the Department of Education to stop collecting payments on Corinthian debt.
The Biden administration later announced full cancellation for all Corinthian students who had been given only partial forgiveness, but thousands of others were left waiting for the department to process their relief applications.
As of December, the department reported it had more than 109,000 pending applications from students alleging fraud by their colleges, mostly in the for-profit industry.
Libby DeBlasio Webster, senior counsel for the advocacy group Student Defense, called it a “fresh start” for former Corinthian students, but she noted that many defrauded students from other for-profit colleges are awaiting help.
She said she hopes the news “is a sign that other decisions are on the horizon for thousands of similarly situated students who are waiting for this kind of relief”.
Former Corinthian student Nathan Hornes had his debt forgiven in 2017 through the borrower defence process, but his sister Natasha is among the 560,000 former Corinthian students now getting cancellation.
“My sister and all the others who went through the same experience of being cheated by Corinthian finally get to experience the same relief of having the financial burden lifted,” he said in a statement. “They deserve that, too, and I’m so glad that today they finally get to feel that freedom.”
A for-profit college trade group said students who are deceived by their colleges deserve relief, but that Corinthian’s actions “do not represent all private career schools”.
“The Department [of Education] and others should not conflate the actions of one organization with an entire sector that has provided opportunities for millions of students and contributed to our nation’s workforce,” said Jason Altmire, president and CEO of Career Education Colleges and Universities.