(CN) – Tens of thousands of students who attended Corinthian Colleges might be forgiven their student debt, the Department of Education said Monday, at a potential cost to taxpayers of $3.5 billion.
Corinthian, a profit-seeking chain college that once had 100 campuses across the country and 74,000 students, was accused of charging exorbitant tuition, falsifying graduate’s hiring statistics, pushing more debt on students than they could afford, and abusive collection tactics, among other things.
More than 330 lawsuits were filed against it, many of them class actions, and the General Accountability Office blasted it and other chain colleges in a scorching 2010 report after a lengthy investigation.
The company, which also operated schools under the names Everest, Heald and Wyotech, closed its remaining campuses in April after being fined $30 million by the Department of Education. It filed for bankruptcy in May, listing $19.2 million in assets and $143 million in liabilities.
Until Monday, only the 16,000 students who were attending Corinthian schools that suddenly closed in April had been eligible for debt forgiveness. Education Secretary Arne Duncan said the new policy will allow other students to seek debt forgiveness if they believe they were victims of Corinthian’s fraudulent practices.
Any student who attended a Corinthian school that was closed can apply for a closed school loan discharge or transfer credits to another institution, if they attended a closed school any time after June 20, 2014, the day the Department of Education restricted the company’s access to federal aid.
Such a closed school discharge normally applies only to students who withdrew without completing their program within 120 days of the school’s closing date or who were attending when the school closed.
“Where students have been harmed by fraudulent practices, I am fully committed to making sure students receive every penny of relief they are entitled to under law. We will make this process as easy as possible for them,” Duncan said.
An estimated 40,000 borrowers at Heald College alone took on more than $540 million in loans that might qualify for debt relief. Approximately $3.5 billion in federal loans was handed out to Corinthian students since 2010.
Duncan said that the department has no way of knowing how many students will come forward and ask for help.
“It’s an unknown quantity at this point,” he said.
In the past few months the Education Department has been urged by nine state attorneys general, students, politicians and consumer advocacy groups to help former Corinthian students.
California Attorney General Kamala Harris, who sued Corinthian in 2013, claiming it misrepresented graduates’ job placement rates and targeted low-income residents, applauded Monday’s announcement.
“This action has the potential to give students new hope and the opportunity to achieve their educational goals and rebuild their lives,” Harris said.
Former Corinthian students who apply for loan forgiveness can stop making payments until the Department of Education resolves their claim.
To qualify for relief, students must show that the school they attended violated state law.
A special master will be charged with developing a system of debt relief and implementing steps to reduce the burden on borrowers, the Education Department said.
Debt Collective – the group that organized a debt strike by Corinthian students – said the Education Department is not going far enough, and should automatically discharge Corinthian students’ debts immediately.
“The legal and most painless possible process for students is no process – they deserve an automatic discharge of their debts,” the group said in a statement.
Instead of “this obvious option, the Department of Education’s ‘solution’ is a bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape,” Debt Collective said.
U.S. Senate Education Committee Chairman Lamar Alexander also disagreed with the debt forgiveness plan, for different reasons.
“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” Alexander, R-Tenn, said.
“This is one more reason it was a bad idea to make the U.S. Department of Education the banker for students as well as the regulator of their colleges. If your car is a lemon, you don’t sue the bank that made the auto loan; you sue the car company.”
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