Biden administration discharges $5.8 billion for defrauded loan borrowers

Students of Corinthian Colleges, including many veterans who attended for-profit colleges, will have debts dismissed. Will others get relief?
By: | June 2, 2022

The Department of Education announced it is forgiving $5.8 billion in federal student loan debt from borrowers who were deceived over a period of two decades by for-profit Corinthian Colleges, the largest single cancellation of debt in the department’s history.

Corinthian, which has been shuttered since 2015, had taken advantage of more than a half-million students including many veterans, by repeatedly making false claims that it could transfer credits when it couldn’t and by promising guarantees of jobs after graduation. Vice President Kamala Harris, then-attorney general in California, launched an investigation that uncovered widespread misrepresentations by Corinthian in 2013, and the Consumer Financial Protection Bureau and attorneys general from other states rallied to help shut down the business. Since then, nearly 100,000 borrowers have had their loan debt discharged.

“For far too long, Corinthian engaged in the wholesale financial exploitation of students, misleading them into taking on more and more debt to pay for promises they would never keep,” U.S. Secretary of Education Miguel Cardona said. “While our actions today will relieve Corinthian Colleges’ victims of their burdens, the Department of Education is actively ramping up oversight to better protect today’s students from tactics and make sure that for-profit institutions—and the corporations that own them—never again get away with such abuse.”

All told, the Department has relieved more than $25 billion in loans from borrowers who were misled by for-profit institutions while vowing to take further action against any institution of higher education engaged in deceptive practices against students. The Department said borrowers who were defrauded by Corinthian should expect to see their debts wiped out in the coming months.

Corinthian Colleges, Inc. at one time had more than 110,000 students and 110 campuses, including its locations in Wyoming and California (Everest, Heald College and WyoTech) where students were defrauded. But by 2015, it had shut down its remaining colleges and sold off its remaining assets. Concerns about compliance issues had been raised about Corinthian in 2012, and it took nearly a decade from the time of the initial investigation for borrowers to get relief.

“The long backlog of borrower defense claims illustrates how even the best-intentioned public policy is only as good as what can realistically be implemented,” said Justin Draeger, CEO of the National Association of Student Financial Aid Administrators (NASFAA). “These borrowers have waited far too long for adjudication and relief, and we applaud the Biden administration for finally taking steps to bring them closure.”

More relief for others on the way?

The staggering dismissal of debt was met with surprise and relief from organizations that represent students, including many veterans groups.

“This is huge news for countless thousands of students—many of them veterans—who were cheated by Corinthian College out of their GI Bill and loaded up with unfair student debt,” said Carrie Wofford, president of Veterans Education Success. “This company did horrible things, like telling military veterans the Pentagon was recommending Corinthian and having its recruiters sign their emails as ‘Pentagon Advisors.’ They tricked countless veterans into handing over their GI Bill and then—on top of that—loaded them up with student loans they never wanted.”

Still, while it was a victory for those who were victimized by Corinthian, Wofford said more must be done to help others who have been deceived by their institutions. “Today’s news is a crucial step forward, but thousands of other student veterans who have been scammed by for-profit schools are still awaiting action by the Education Department on their applications for Borrower Defense relief,” she said. “We also need Congress to step up to stop the fraud. There should be no more schools approved for federal student aid and GI Bill that are ripping off veterans—and taxpayers—for worthless degrees.”


More from UB: Millions of loan borrowers get relief in sweeping plan to fix student loan system


In a statement, the Department said it is working on “new regulations that will permanently improve a variety of the existing student loan relief programs, significantly reduce monthly payments, and provide greater protections for students and taxpayers against unaffordable debts.” It has eliminated loan debt for more than one million borrowers through Public Service Loan Forgiveness, disability discharges and for those who were victims of deceptive acts by their institutions. In February it approved $415 million in relief for 16,000 borrowers, including 18,000 who were defrauded by DeVry University.

The department and the Biden Administration have pitched a revamp of the federal student loan system, including income-driven repayment, as well as further relief for current and new borrowers by “holding colleges accountable for leaving students with mountains of debt and without good jobs.” Draeger, whose organization has been out front on student loan relief and doubling the amount of Pell Grant aid for eligible students, said it is time for those actions to occur.

“While we applaud the Department of Education for this targeted relief, we also call on the administration and Congress to begin working on systemic student loan reform,” he said. “Student loan forgiveness—no matter how well targeted—will not solve the long-term issues that plague our student loan system. We urge policymakers to give these comprehensive student loan reform ideas full consideration to fix a broken system that leaves too many students and parents hopelessly buried in student loan debt.”