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Under Pressure, Government Offers Corinthian College Student Loan Debt Relief

corinthian student loan relief

On June 8, 2015, the Department of Education (ED) announced forgiveness for students attending Corinthian Schools – the for-profit chain that recently fell like the house of cards that it was.

It all started in May 2104 when Corinthian missed a deadline to provide a number of requested documents to the U.S. Department of Education. The Department, in turn, put a 21-day hold on sending federal student loan funds to Corinthian, and the school claimed it could not function without those funds.

Corinthian then claimed bankruptcy was imminent. ECMC bought about 50 campuses with the help of the CFPB who arranged for private loan forgiveness (but not fed loan relief).

Corinthian was unable to sell any campuses in California because of a lawsuit filed by California Attorney General Kamala Harris. Finally, under the pressure of mounting legal actions, on May 4, 2015, Corinthian filed a chapter 11 bankruptcy.

A group of Corinthian students protested, had one meeting with ED and then backed out of a second meeting for fear that ED was using it more as a publicity stunt and less for the intended purpose of discussing real relief.

It looks like the protest worked, to a point. Relief will be had, but not for all, and not in a simplistic manner.

Here are the brief details:

Closed School Discharge

Normally when a school closes, only students enrolled or who had left within a 120 day window of the closing are entitled to a closed school discharge.

ED is changing that policy for Corinthian students only, allowing anyone who was enrolled at or after June 20, 2014 at a school that eventually closed to obtain this discharge.

What about those who left the schools before this date after seeing the writing on the wall? Or the students who stayed because their schools were bought and continued to run?

They’ll have to look for other relief, described below.

Defense to Repayment

This little utilized defense has now been given a use, specifically for Corinthian students. If a student claims fraud against a Corinthian school, based on their State law, the student MIGHT qualify for discharge.

The issue is that ED will rely on evidence of “appropriate authority” to allow groups of students an instant discharge. I guess that would mean those living in States with active AG’s who have sued or at least investigated Corinthian schools will have an easy time with this.

For those where no State government body has done anything, this could be a tall hurdle.

Forbearance and Collections Stop

For students who raise the Defense to Repayment issue, they can have a forbearance on their loans so as not to have to make payments while their claim is reviewed.

For those who have defaulted, collection activities are ordered to stop.

There is no timeline on when debt collectors will be updated on this policy. Let’s hope they have already received the memo and are training their staff right now.

Special Masters and Process

A Special Master will be created to help create a streamlined process to deal with the Defense to Repayment claims.

More information can be found at www.studentaid.gov/Corinthian, or by calling 855-279-6207 (this is a government number – not some scam consolidation company).

A New Hope

There is also mention in ED’s statement (you can read it here) that ED is committed to building a better debt relief system through this process. I guess we’ll see. Maybe ITT Tech students will get to test it.

There is a whole lot more in ED’s press release, including a sizable amount of text dedicated to calling out Congress for not doing anything. I think ED is passing the buck, but there is some validity to the statements.

If you really want to see the shortcomings of ED’s forgiveness plan, read NCLC’s position statement. It puts things into better context and reveals the true reality of just how much is missing.

Still, this is better than nothing and shows the continued erosion of ED not caring. There is a long way to go, but baby steps is still a sign of forward progress.

If you’re looking for help with the process, get in touch and we can talk it over.

Comments

  1. Scott

    In your opinion, how far out do you think we are from seeing bankruptcy restored for private student loans? I feel that for the past few years people have been saying that the change is imminent, yet nothing has happened yet. There is the Fairness for struggling students Act of 2015, but it doesn’t seem to be gaining any traction. Senator Durbin has introduced a bill similar to this every year for the past two or three years, but each time it seems to die in committee.

    • Joshua Cohen

      I think bankruptcy protection for private student loans is a few years out. Certainly not until after this next major election.