Education

Plan to forgive for-profit college loans could cost taxpayers billions

The Everest University campus in Brandon, which still operates but under new ownership.
The Everest University campus in Brandon, which still operates but under new ownership.

Saying students “deserve a college education free from rip-off scams,” U.S. Secretary of Education Arne Duncan unveiled the outline for a massive student loan forgiveness plan for students — an undertaking that could ultimately cost taxpayers billions of dollars.

Duncan called the proposal “unprecedented.” It comes one month after the scandal-plagued Corinthian Colleges chain of for-profit schools filed for bankruptcy. Corinthian, which operated Everest University and other schools, is accused by the federal government of falsifying its job placement rates, misleading students and encouraging them to lie on loan applications .

In a Monday afternoon conference call with reporters, Duncan told reporters that a college education is the pathway to the middle class, but “that path has to be safe.”

“Some of these schools have brought the ethics of payday lending into higher education,” Duncan said.

Curtis Austin, the head of Florida’s for-profit college lobbying group, the Florida Association of Postsecondary Schools and Colleges, said that all types of schools can make mistakes. Austin said he does not believe there are systemic problems with the industry.

As to assertions that some for-profit colleges have used dishonest tactics, Austin responded “I don’t know of any that are currently operating that do that.”

The government’s new loan-forgiveness option will apply first to Corinthian students, but eventually to students at other schools, including non-profit and public colleges. Former Corinthian students can visit studentaid.gov/Corinthian for more information.

Corinthian students received about $3.5 billion in federal loans during the past five years, officials said. The company had 15 Florida campuses at its peak, including locations in Pompano Beach, North Miami and Kendall. Some Everest campuses in Florida are still open — but under different ownership.

The new loan-forgiveness process revolves around a long-overlooked provision of federal law that lets borrowers ask for a clean slate if their school is guilty of misconduct. Over the past 15 years, the federal government had received only a handful of requests under this law, which were handled on a case-by-case basis.

But as Corinthian imploded from the weight of fraud allegations, some students and consumer groups demanded that the Department of Education forgive the debts of its students. The department now has 1,400 requests from Corinthian students, and until now it had no formal, written process on how to handle them.

Those requests came as some former Corinthian students spearheaded a first-of-its-kind “debt strike,” refusing to pay their loans. They argued Corinthian conned them into a “debt trap” and that the U.S. government “let it happen.”

While some details of the loan-forgiveness plan are to be determined, Monday’s announcement included considerable information, including:

▪ The key hurdle for students is they must prove that the school they attended broke state law, and that the law-breaking ending up harming the student in some way. This will likely be easier for students from a large, troubled company like Corinthian, which had been investigated by many different states and federal agencies. Students from a small school with no history of lawsuits or investigations may find it difficult to satisfy this requirement.

▪ Where possible, the Department of Education says it will consider students’ claims together as a group. For example, if the government finds that a particular program at a school routinely misled students, it can decide that all students who attended are eligible for loan forgiveness. Students in such cases would only have to apply, and wouldn’t face a burden of proof to get financial relief.

▪ For now, there is no time limitation. That means students who attended in 2005 or 1998 could ask for loan forgiveness — though they will still have to prove their school broke state law.

Stephanie Joseph of West Palm Beach is one student who was very interested in Monday’s announcement. Joseph began her studies at Everest’s Pompano Beach campus, and graduated from its Orlando campus in 2008. Joseph earned a paralegal associate’s degree, but said Everest never provided the job placement services it promised, and the school falsely told her that her credits would transfer to other schools.

Joseph said employers didn’t respect her Everest degree, and she couldn’t find work. After realizing that no traditional school would take her credits, Joseph said she was forced to start her studies from scratch at a community college. Her Everest loans, totaling more than $25,000, were in default, so she had to pay out of pocket for her community college tuition.

“I can’t even begin to explain what I’ve gone through,” said Joseph, who is still in school. “It’s just been hell.”

Joseph, 28, said loan forgiveness would remove a “big weight” from her life.

Monday was also the first time that U.S. Department of Education officials commented on the Herald’s recent investigation of for-profit colleges, Higher-Ed Hustle.

The Miami Herald spent a year investigating Florida's for-profit colleges - conducting scores of interviews and reviewing tens of thousands of pages of documents. Here's what it found.

The department’s press secretary, Dorie Nolt, issued a statement saying “given our enforcement role, we’re limited in how much we can discuss specific programs beyond saying that the allegations are troubling. The Department is committed to hold all colleges accountable for giving students what they deserve — a high-quality, affordable education that prepares them for their careers and life — while also safeguarding the interests of taxpayers.”

Duncan said his department has been trying for years to strengthen oversight of for-profits but repeatedly has met resistance from members of Congress. The for-profit college industry donates generously to politicians from both political parties.

“Congress has fought us every step of the way,” Duncan said. “Hopefully Congress will wake up here.”

Ted Mitchell, a departmental under secretary, said “states and accrediting agencies also need to step up their game.”

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