May 19, 2015 / 8:35 PM / 5 years ago

Corinthian collapse sparks effort to cancel student loan debt

WILMINGTON, Del., May 19 (Reuters) - The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses.

More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.

The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.

Corinthian settled allegations about misrepresenting job placements with the California attorney general in 2007.

NCLC lawyer Robyn Smith said there was no precedent for the department to cancel student debt in the way the groups were urging.

“Unfortunately, they haven’t used this authority before,” she said.

The Department of Education said it had not decided how any debt relief would work.

“Our administration is committed to making sure students who have been defrauded or whose schools closed receive every penny of debt relief that they are entitled to,” said Assistant Press Secretary Denise Horn. “We will make that as easy as possible for students, and we will hold institutions accountable.”

Scott Gautier, a lawyer representing an official committee of students, said in an email that student debt “should be recognized as Corinthian’s ill-gotten gains and should be recovered, if at all possible, directly by the government from Corinthian.”

Corinthian entered Chapter 11 with $143 million in debt and about $19 million in assets, according to court documents.

The company operated the Heald College, Everest and WyoTech schools and offered degrees in healthcare and trades. In 2014, it sold 56 campuses to Education Credit Management Corp, a company known for fighting attempts to discharge student loans in bankruptcy.

In April, Corinthian closed the last 28 of its campuses without warning, leaving 16,000 students unable to complete their classes. Those students can apply for a loan discharge, according to the Department of Education.

Creditors could target Corinthian executives, who reaped millions in annual salaries, according to regulatory filings.

On Monday, top current and former Corinthian executives said in court papers that they were seeking liability insurance money to pay for their mounting legal costs stemming from criminal and civil actions. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Von Ahn)

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