Students Defrauded by For-Profit Colleges Demand Loan Forgiveness


This week marks the one-year anniversary of the debt strike initiated by 15 former students at Corinthian, a predatory chain of for-profit colleges that lied about job placement to lure borrowers. Now thousands have joined the cause, refusing to repay hundreds of millions of dollars in student loans on the grounds that they were fraudulently issued.

Corinthian is now out of business, and the Consumer Financial Protection Bureau secured a judgment in federal court that the company illegally issued loans to students. But though former Education Secretary Arne Duncan and his cohorts have promised that student victims would receive “every penny of debt relief” they deserved, the Education Department is trying to push through a new rule that would make it exceedingly difficult for borrowers to receive justice.

At issue is the “defense to repayment” clause inserted in all student loan contracts since 1994, which gives defrauded borrowers the opportunity to challenge their loans. In its first 21 years of existence, only five students even attempted to use it. But activists dusted off defense to repayment after Corinthian engaged in a widespread scheme to overpromise students a worthwhile education, sign them up for multiple loans without their knowledge, and pump out useless diplomas that could not possibly deliver debt-ridden borrowers the jobs and careers they were assured.

The Education Department vowed to forgive federal loans for Corinthian students last June. But since then, it has made the loan forgiveness process unnecessarily burdensome, forcing the majority of students to individually re-prove the fraud rather than using its authority to provide blanket relief. The department made defense to repayment applications hard to use, required detailed and often impossible-to-retrieve information, added an additional layer of bureaucracy by appointing a Special Master to review claims, and generally delayed the process to prevent having to immediately forgive billions of dollars.

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The Fiscal Times