Former Corinthian College students left with piles of debt after the company closed its Heald College, Everest University and WyoTech campuses earlier this year are getting a bit more relief, as the Department of Education announced it would temporarily suspend some legal actions related to borrower’s defaulted loans.

MarketWatch reports that the Dept. of Education has agreed that until November it will stop judicial action related to debt collection attempts for up to 40,000 former students of the now-defunct for-profit college chain who have defaulted on their loans.

The relief comes as part of an agreement between the Dept. and a group representing Corinthian students during the company’s bankruptcy proceedings.

The agreement means that if a student is in default, they will still likely receive letters and phone calls from bill collectors and their credit scores will still be negatively impacted. However, if they are being sued in court, those proceedings will be stayed.

In exchange for halting the collection of debt, the student committee agreed to withdraw its petition that sought a court-ordered stay of collection efforts on all former Corinthian student loan debt. The group had sought the court-ordered freeze on debt collection while the Dept. and other creditors – through bankruptcy proceedings – hash out who is responsible for repayment of loans students took out to finance their CCI education.

As part of the agreement, the Dept. of Education will send letters to former Heald College students – those who attended the school since 2010 – notifying them that their loans are eligible for forbearance – the reduction or temporary halting of payment on student loans.

“This is a small step in the right direction. It illustrates a willingness by the Department of Education to work with the committee,” Scott Gautier, a bankruptcy attorney at the law firm Robins Kaplan in Los Angeles, who is representing the students, tells Marketwatch.

The Dept. of Education’s agreement to stop debt collection actions against some borrowers comes two months after it announced students at schools under the Corinthian Colleges Inc. umbrella would get the chance to request that some or all their federal student loan obligation be lifted.

That plan applied to students who attended (after June 20, 2014) the 30 CCI campuses that closed in April. The Department provided two avenues for relief:

1. Apply for a closed school loan discharge, which would get rid of the obligation to repay and reimburse the student for any payments made; or

2. Transfer earned credit to another institution to continue their education in a comparable program.

Taking the second option and continuing your education does not mean you give up your right to some relief. If you believe that you were a victim of fraud (or any other legal violation) by a CCI school, you can make a claim for debt relief under a legal rule called “borrower defense to repayment.”

When you apply for a borrower defense, you can have your federal loans put into forbearance so that you’re not making payments (but you don’t get in trouble for not making them) while your claim is being resolved. If a borrower is already in default, they may request a stop to collection activity.

In either case, interest will continue to accrue pending the outcome of the dispute. Borrowers can opt out of the forbearance if they wish.

If you are a Corinthian student seeking debt relief of either type, please visit the FSA website or call toll-free at (855) 279-6207 and a staff member will provide the information you need.

To expedite dispute resolutions regarding CCI student loans, the Dept. of Education is acknowledging that Corinthian misrepresented job placement rates for a majority of programs [PDF] at its Heald College campuses between 2010 and 2014. Students in the programs listed in the PDF during that time are entitled to a discharge of their Federal Direct Student loans if they can claim they relied on those fraudulent placement rates in deciding to attend Heald.

California-based CCI, once one of the largest for-profit college chains in the country, has been at the center of numerous federal and state investigations and lawsuits and began downward dive last summer after agreeing to sell or close a majority of its campuses in a deal with the Department of Education.

The company completed the sale of some 56 campuses to Education Credit Management Corporation in early February. In order to close that deal, ECMC agreed to provide $480 million in forgiveness for current and former students who took out CCI’s high-cost private student loans.

Since that time, CCI has faced several other issues including being delisted from Nasdaq and notice from the California Student Aid Commission that it would halt grants to CCI students. Both of those moves came after the company failed to submit required financial statements to both the Securities and Exchange Commission and the student aid commission.

The company’s downward spiral concluded in April when it announced it would close its remaining campuses. The next month the company filed for bankruptcy, leaving hundreds of thousands of student holding hundreds of thousands of dollars in worthless student loan debt.

As many as 40,000 Corinthian students could get temporary relief from their loans [MarketWatch]

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