US to forgive thousands of student loans after disgraced colleges' collapse
About $3.6bn paid in federal loans to students of for-profit Corinthian Colleges since 2010 and critics worry that even partial bailout sets worrying precedent
The education secretary, Arne Duncan, announced that the government would make it easier for students who attended Corinthian Colleges to erase their debt. Photograph: Manuel Balce Ceneta/AP
A government plan to wipe out loans for many of the students who attended the now-disgraced for-profit Corinthian Colleges raises serious questions about whether the White House or Congress should have done more to prevent the debacle.
The education secretary, Arne Duncan, announced that the government would make it easier for former Corinthian students to erase their debt. About $3.6bn in federal loans has been given to these students since 2010. That potentially puts the taxpayer on the hook for that amount, although officials say it is unlikely that every loan will qualify for relief.
At the very least, the government is looking at footing the bill for hundreds of millions of dollars in student debt in what has become a major consumer bailout. Some advocates say the government should have done more sooner to intervene, while others are questioning the latest approach.
“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” said Senator Lamar Alexander of Tennessee, who chairs the Senate education committee.
Alexander said one of the problems has been an inherent conflict of interest with having the Education Department provide loans and regulate colleges.
“If your car is a lemon you don’t sue the bank that made the auto loan; you sue the car company,” he said.
Corinthian Colleges was one of the largest for-profit schools when it nearly collapsed last year and became a symbol of fraud in the world of higher education and student loans. According to investigators, Corinthian schools charged exorbitant fees, lied about job prospects for its graduates and, in some cases, encouraged students to lie about their circumstances to get more federal aid.
In a plan orchestrated by the Department of Education, some of the Corinthian schools closed while others were sold before the chain filed for bankruptcy this spring. The biggest question has been what should happen to the debt incurred by students whose schools were sold. The law already provides for debt relief for students of schools that close, so long as they apply within 120 days.
The latest plan expands debt relief to students who attended a now-closed school as far back as a year ago. And it streamlines the process for students whose schools were sold but believe they were victims of fraud. The Education Department will soon appoint a “special master” to oversee much of the program, who will support students at other for-profit schools who feel they have been victimized.
“We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable,” Duncan said in a statement on Monday.
The amount of debt relief could be staggering. Officials estimate that some 40,000
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