In its largest-ever move to cancel student loans, the Department of Education said Wednesday it would wipe $5.8 billion from 560,000 borrowers attending Corinthian Colleges, one of the country’s largest commercial college chains before it collapsed in 2015.
Debt cancellation is automatic, eliminating the need for former Corinthian students to apply to have their debt forgiven. The Department of Education will eliminate the remaining balance on federal student loans from those who have completed a Corinthian campus or online program during the chain’s 20th anniversary.
“For far too long, Corinthian has engaged in the massive financial exploitation of students, tricking them into taking on more and more debt to pay for promises they would never keep,” said Education Minister Miguel Cardona.
President Biden faces intense pressure from student borrowers and progressive lawmakers to take executive action to largely cancel federal student loan debt. Mr Biden, who pledged to take out $10,000 of loans from “everyone in this generation” during his campaign, said in April he was “considering taking on some debt reduction,” but White House officials said there were no final decision had yet been made .
As an interim step, his administration has significantly expanded the government’s use of emergency aid programs targeting a variety of borrowers, including civil servants, permanently disabled individuals, and those who have been ripped off by colleges.
Borrowers and their lawyers celebrated the Corinthian decision as a turning point.
“It’s really hard to overestimate how impactful this will be for hundreds of thousands of people,” said Thomas Gokey, one of the founders of the Debt Collective, an advocacy group.
Corinthian became one of the most prominent examples of bad behavior in the often troubled for-profit college industry. Founded in 1995, the company acquired a series of schools across the country and, at its peak, enrolled 110,000 students on more than 100 campuses.
But allegations of illegal recruiting tactics, shoddy educational programs and false promises to students about their career prospects and potential future earnings have shadowed the company for years, leading to a series of investigations and lawsuits by state and federal agencies. When Vice President Kamala Harris was California’s Attorney General, she sued the chain in 2013 over what she called a “ruthless” scheme “designed to make a profit” by targeting vulnerable populations such as disabled workers. low-income, single parents, and military veterans.
As enrollment numbers declined, Corinthian closed its campuses and filed for bankruptcy, leaving tens of thousands of students pursuing degrees and certificates. That meltdown led to a backlash of the base. A group of students calling themselves the Corinthian 15 went on a debt strike and refused to pay their federal student loans.
They also discovered an obscure clause in the law governing the loans: If borrowers were significantly misled by their school, they could ask the government to waive their loans. Just as a bank values a house before it mortgages it, the Department of Education must ensure that the programs it uses to pay taxpayer-backed loans are legitimate.
The Corinthian 15, backed by the Debt Collective, called on hundreds of students to flood the department with loan relief applications through a program that became known as “borrower protection against repayment.” Tens of thousands of former Corinthian students eventually joined the action. In 2015, Arne Duncan, then the education secretary, announced that the government would cancel their loans.
But the process dragged on, and by the time President Barack Obama left office, relatively few debts had been forgiven. Betsy DeVos, who took over as secretary of education under President Donald J. Trump, froze the program and tried to cut aid to successful applicants.
Mr. Biden reversed those steps and some 100,000 former Corinthian students have already had their loans forgiven in full. Wednesday’s move will extend support to hundreds of thousands of others who had not filed borrower defenses. And those who have made payments on federal loans still outstanding will get their previous payments back, education ministry officials said Wednesday.
“This has taken a long time,” said Nathan Hornes, a member of the Corinthian 15 who attended Everest College in Ontario, California.
Latonya Suggs, another participant in the original strike, said she had mixed feelings about the win. “It took way too long,” she said. “I struggled with this for years.”
Tens of thousands of borrowers at dozens of different schools are still awaiting decisions on their borrower defense claims, some of which were filed six years ago. About 200,000 applicants — including 130,000 rejected in the last year of the Trump administration — are part of a class-action lawsuit seeking relief.
“We’re celebrating today and going back to work tomorrow,” said Eileen Connor, director of the Project on Predatory Student Lending, which represents these borrowers in court.
Ms. Suggs is also looking ahead and plans to continue her activism for large-scale student debt forgiveness. “We didn’t just fight for Corinthian. We fight for everyone,” she said. “One win has been won and there are many more to go.”
