Will Corinthian Colleges Be Able to Pay Back Students?

The defunct, bankrupt for-profit college recently lost a federal restitution lawsuit. Will the students ever see their debt relieved?

Adriana Garay consults her niece, Haley Sandoval, a student at the now-closed Everest College, hoping to get their information on loan forgiveness. (Christine Armario / AP)

Federal regulators have won a major court case against Corinthian College Inc., the now-defunct for-profit college chain. Many allege that the company defrauded students largely by inflating job-placement statistics and allowing students to take out private loans at high interest rates while practicing “illegal debt-collection tactics.”

A U.S. District Court judge on Tuesday ordered that Corinthian Colleges Inc.—which at one point oversaw 100 schools in states including Arizona, Colorado, California, Hawaii, and Oregon—pay back $531 million in damages to all students who attended the network of colleges before it was shuttered in April. The Wall Street Journal reports that the lawsuit, brought last year by the Consumer Financial Protection Bureau, contended that the college franchise was operating a “predatory lending scheme” and accused it of both “fudging” the statistics it used to recruit students and hiring its own graduates to boost job-placement rates. The Department of Education fined Corinthian Colleges $30 million in April for overstating those rates.

“We all have much more work to do before current and past students who were hurt by Corinthian’s illegal practices can be made whole,” said Richard Cordray, the director of the Consumer Financial Protection Bureau. “We remain deeply concerned about risks facing student borrowers in the for-profit space and will continue to be vigilant in rooting out harmful practices.”

Still, while the Consumer Financial Protection Bureau’s court victory may assuage some of the concern that the government is perpetuating the problems with for-profit colleges, in reality it doesn’t ensure that all the Corinthian students will be relieved of their debt. After the lawsuit was issued last fall, Corinthian Colleges filed for bankruptcy, effectively rendering all of its assets unavailable for the repayment. According to The Washington Post, at the time of its bankruptcy filing Corinthian had less than $20 million in assets—but its liquidation plan dissolved all of those assets.

As part of a resolution package agreed upon last year, the Department of Education forced Corinthian to sell or close its schools. And initially, that went according to plan: As a result of  the sale of 56 schools to ECMC Group, thousands of students have had their debt forgiven, and more have had reductions to their balances. The Department of Education, however, is still responsible for parsing through the hundreds of requests filed by other students that accuse Corinthian of fraud.

Looking ahead, the recent ruling, combined with the college’s shutdown, could persuade the Department of Education to forgive more students’ federal loan debt and further soften its stance on debt forgiveness. Currently, federal law gives student borrowers the right to apply for total relief if they can prove schools misled them into taking out federal student loans—a provision on which the Obama administration has already acted. Shortly after Corinthian Colleges closed the last of their schools, the administration decided to relieve the debt of about 3,000 borrowers who attended those schools to compensate them for the abusive practices they endured there. Still, others have to apply for relief individually and submit hard-to-come-by documents from shut-down schools, meaning that some students will inherently be left out.

All in all, Corinthian students have, according to the Post, borrowed about $3.2 billion in federal loans since 2010. As of August, close to 8,000 Corinthian students had applied for loan forgiveness, a little less than half of whom have been approved.

The Atlantic’s Gillian White has reported that for-profit colleges have risen in popularity since the recession of 2008, and their attendees are more vulnerable to these types of schemes for various reasons: They are typically older, have lower incomes, are more likely to be considered financially independent. These borrowers are more likely to default on the loans they took out to attend for-profit colleges, often because of the institutions’ predatory practices. Students at for-profit colleges represent only about 11 percent of all postsecondary students, but 44 percent of all federal student-loan defaults.

In 2000, only one of the 25 U.S. colleges and universities where students held the most student-loan debt was a for-profit, and that number jumped to 13 in in 2014. “The amount of debt owed by those attending for-profit colleges has grown from $39 billion in 2000 to $229 billion in 2014—which is more attributable to increases in the rate of borrowing at those schools than to increases in enrollment,” White wrote.

While for-profit colleges are generally appealing to non-traditional students, many of the institutions have come under scrutiny for specifically targeting military veterans, who come with GI bill aid. Earlier this year The Atlantic’s Alia Wong reported that predatory institutions often use veterans to skirt the federal “90/10 rule,” which states that for-profit colleges can’t generate more than 90 percent of its tuition revenue from federal aid—a rule from which military benefits are exempt. In fact, this week’s court ruling follows recent news that the Department of Defense earlier this month suspended the University of Phoenix from recruiting military students.

Still, some observers remain skeptical that real solutions are in sight for the Corinthian students and their peers who’ve been similarly victimized by predatory for-profits. Dick Durbin, a Democratic senator from Illinois—where the recent lawsuit against Corinthian Colleges Inc. was tried—questions the culpability of for-profit college leaders and the government’s place in overseeing these college networks. “Two questions: Will anyone at Corinthian be held personally responsible? And when will our government hold this industry accountable for the damage it is causing students across America?”

Meanwhile, the controversies surrounding for-profit colleges have further polarized discussions around college affordability. While eleven U.S. senators have applauded the Department of Defense for restraining the University of Phoenix, some officials have lobbied on behalf of for-profit colleges. After the suspension, Arizona Republican John McCain, and two fellow senators, wrote a letter addressed to Department of Defense Secretary Ashton Carter, noting:

“We strongly believe that these earned benefits and educational opportunities for our service members should not be jeopardized because of political or ideological opinions of some Members of Congress regarding the types of institutions that provide postsecondary education to our troops.”

Others, including the Republican presidential candidate Marco Rubio, also asked for leniency on the college’s behalf. In a letter obtained by Bloomberg, Rubio wrote:

“It has been brought to my attention that the U.S. Department of Education has recently placed extreme financial constraints on Corinthian Colleges, Inc. by restricting the company's timely access to federal financial aid. It is my understanding the the Department of Education has requested extensive documents be provided by Corinthian Colleges for review, and Corinthian has acted in good faith to try to provide these documents as expeditiously as possible… While I commend the Department's desire to protect our nation's students from fraudulent and malicious activity by any institution of higher education, regardless of tax status, I believe the Department can and should demonstrate leniency as long as Corinthian Colleges, Inc. continues to expeditiously and earnestly cooperate by providing the documents requested.”