20,000 For-Profit College Students Ask Education Dept. To Cancel Their Student Loans

As the fallout continues from the collapse of Corinthian Colleges Inc. — former operator of Everest University, WyoTech, and Heald College — the Department of Education is trying to sort through nearly 20,000 loan-forgiveness requests from former students who claim that CCI and other for-profit colleges misled them into taking out huge student loans.

Unlike many loans or lines of credit, federal student loans generally can’t be discharged through bankruptcy, so even if the borrower is unable to pay, they will continue to owe the debt.

However, there are some ways in which students who have been victimized by bad schools can seek to get out from under their loan debt. If a school closes and there are no other options available to the student, they can argue for a “closed school” claim. The government has already forgiven some $75 million in loans to 5,800 former CCI students who filed this type of claim.

The other way is the heretofore little-used “borrower’s defense” claim, which involves making allegations of deception on the part of the school. CCI and a number of other for-profit schools have been accused of misleading both investors and students with trumped-up post-graduation employment statistics. Some students also didn’t find out until too late that, in spite of having paid tuitions equivalent to selective private colleges, not all of their course credits will transfer to other schools.

Urged on by consumer advocates and lawmakers, the Obama administration decided in mid-2015 to begin reviewing borrower’s defense claims. By Jan. 2016, the Education Dept. had already received 7,500 of these applications, representing around $164 million in loans.

Now the Wall Street Journal reports that this has ballooned to 19,657 borrower’s defense requests. Thus far, the government has canceled $27 million in debt for more than 3,400 borrowers; mostly former CCI students.

The review of the applications is ongoing, even though the Education Dept. has yet to receive guidelines from an advisory panel about how it should be applying the vague law that allows for borrower’s defense claims. The Journal reports that these guidelines are expected in the near future.

One big issue surrounding these claims involves how much evidence a student would need to provide to demonstrate the fraud. Should the government — as some have suggested — simply acknowledge that a school like CCI committed widespread deception in its marketing and advertising, and therefore accept applicants’ claims of deception as true? Or should the applicants need to provide some sort of evidence documenting the particular deception that resulted in them taking out student loans — and if so, how does one prove they were misled years after the fact?