In First Wave of Debt Relief, ED to Forgive More Than $100 Million in Loans

By Allie Bidwell, Communications Staff

In its first wave of debt relief, the Department of Education (ED) will on Friday begin forgiving more than $100 million in federal student loans for thousands of former Corinthian Colleges students, according to a report released Thursday.

In his second report, Special Master for Borrower Defense Joseph Smith gave an update on ED’s progress toward establishing a longstanding framework for borrower defense claims. As of November 18, 2015, Smith and his team recommended ED forgive federal loans of 1,312 borrowers, totaling to more than $27.8 million, which will not be considered taxable income, the Department of Treasury also announced Thursday. Another 5,379 borrower defense claims remain open.

Additionally, ED has processed 5,814 closed school claims from former Corinthian Colleges students, totaling to more than $75.4 million in debt relief.

“We will continue to provide forgiveness to every student who has been similarly mistreated,” said Under Secretary Ted Mitchell, in a statement. “Allowing this situation to repeat itself at other institutions would be unfair to students and taxpayers. We look forward to working with Congress, states and accreditors to improve accountability and transparency in the career college industry.”

Corinthian reached an operating agreement with ED in July 2014 that required the for-profit college chain to cease operations at its campuses through implementing teach-out agreements for at least a dozen campuses and selling the rest.

In November 2014, Corinthian announced it would sell 53 of its Everest and WyoTech campuses, which enrolled roughly 35,000 students, to the nonprofit Zenith. In April 2015, ED completed part of its investigation into Corinthian’s job placement rates that initially caused the institution to be placed on heightened cash monitoring, and issued a $30 million fine against Corinthian for inflating job placement rates at its Heald College campuses in California.

Not long after, Corinthian announced on April 27 that it would immediately shut down the more than two dozen remaining campuses in California, Oregon, and Hawaii – an action that made those students who had not completed their programs eligible to file closed school discharge claims. ED extended the discharge period from the typical 120-day window to students who were enrolled as of June 20, 2014.

In total, as of November 18, 2015, ED has received 6,691 borrower defense claims, representing roughly $138 million in federal loans. While the majority of claims (5,340, or 79.8 percent) come from Corinthian Colleges-operated campuses – Heald, Everest, and Wyotech – a number of other claims come from Art Institute (931), ITT (159), and the University of Phoenix (22).

Smith noted in the report that certain students who attended Heald College received an expedited process for submitting borrower defense claims through an attestation form, due to ED’s investigation and consultation with the Office of the California Attorney General. Since then, ED released its own findings against Everest and Wyotech that showed evidence of misleading job placement rates, which it said could result in more debt relief. Smith and his team have begun a review of the findings, and he said he expects it will result in a similar process provided to Heald College students.

Smith also said he and his team of attorneys have begun working with other state attorneys general to draw on information from any state investigations into borrower defense claims. Specifically, Smith said ED has received evidence from the Illinois Attorney General’s office and the Massachusetts Attorney General’s office.

The next report from Smith and his team is expected to be released in February 2016.


Publication Date: 12/4/2015

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