In the Senate HELP Committee’s confirmation hearing for Acting Education Secretary John B. King Jr, Senator Elizabeth Warren asked why the defrauded students of the now-bankrupt Corinthian Colleges have not received the debt relief they’ve been promised, despite the fact that the Department of Education has both the authority and the legal obligation to grant it.
Corinthian Colleges, Inc. was a for-profit school that received billions and billions in federal student loan money before its bankruptcy. But instead of the opportunities students were seeking Corinthians further impoverished them, cheating them of the education they were promised while burdening them with millions in outstanding debt. So, What is debt settlement? This is one of the schemes ex-students of Corinthian College have been looking into. Some students are carrying a burden of $100,000s of US Dollars debt to their name which makes it almost impossible to get a mortgage for a lifetime family home. What has happened to cause such a catastrophe?
Prior to its collapse, Corinthian faced an investigation from the Securities and Exchange Commission, a lawsuit from the Consumer Financial Protection Bureau for predatory lending, which the Bureau subsequently won, and legal actions and investigations by twenty-three state Attorneys General. Corinthian has since faced two enforcement actions by the Department itself.
Senator Warren pressed Acting Secretary King on what’s taking so long, noting, “I don’t get why it doesn’t move faster. We know they’ve been defrauded!”
A transcript of her remarks in the Committee follow:
Senator Elizabeth Warren: I want to raise one more issue. The students who were cheated by Corinthian College. Now, before Corinthian College collapsed, this for-profit college sucked down billions and billions of dollars in federal student loan aid by roping in students with false and misleading information and then saddling them with debt that is going to be impossible to repay. It was outright fraud, and in response the Department made a lot of promises to Corinthian’s victims. Last April, the Department promised to give Corinthian students “the relief they are entitled to under federal law.” Two months later, the Department announced they would “find ways to fast track relief based on legal findings for large groups of students” and there would be “no need for students to make individual showing that they were affected by the school’s fraud.” The Department also estimated last summer that about 40,000 former Corinthian students would be eligible for this so called fast track relief. Now, that’s out of hundreds of thousands of total Corinthian student that the Department acknowledged could be eligible for relief. It is now eight months later, and just 1,300 of those 40,000 fast track students have received relief. And I want to know what the plan is here to actually deliver on the promises that the Department has made. It seems to me, Dr. King, that the Department is moving painfully slowly while students who got cheated are struggling under debts that they were conned into taking on. Time is running out for these students, so I want to know, how do you plan to live up to the Department’s promises and actually ensure that each and every student who was defrauded receives debt relief now? Not years from now, but now?
Acting Secretary John King: I appreciate the question. So a few things to know. The special Master Joe Smith is working diligently with a team and we are adding capacity to that team to add to existing claims…
Sen. Warren: Can I just stop you right there, Dr. King, because this is part of what’s bothering me. I don’t understand why this takes so long. This isn’t hard, what we’re trying to do here. Students are waiting, their credit is getting worse and worse, the interest is accumulating on these loans, the process needs to move faster. And I don’t get why it doesn’t move faster. We know they’ve been defrauded!
Sec. King: We’re trying to make it move faster. I can say a promising note is that $115 million has gone to students either through borrower defense or through close school discharge. We are trying to group claims so that we can respond to them as quickly as possible. We are in the process of negotiating rulemaking on new borrower defense rules going forward that will make it easier for the department to efficiently group claims.
Sen. Warren: That’s going to be 2017.
Sec. King: So the challenge has been that the legal requirement, as you know, is for a demonstration that there was a clear violation of state law. We have students in a variety of states so we are working through those. On campuses where we have a clear finding, and these is true in the Heald and Everest cases, where we have a clear finding at the state level we have been able to group claims or we are in the process of grouping claims. But you are right, we need to make the process move faster and we intend to.
Sen. Warren: I just really want to push on this we potentially have hundreds of thousands of students who have been cheated here. You promised fast track to 40,000 students…That was three-quarters of a year ago, nearly, two-thirds of a year ago, and we’ve only gotten about 1,300 people through it. You know, I just want to remind us that Congress gave the Secretary of Education broad authority to cancel the loans of students who attend colleges that broke the law. I hope if you are confirmed you will use that authority to ensure the students get every dime of relief that they deserve, without making them jump through a bunch of unnecessary hoops. They’ve already been hit hard enough. This is the time for the Department of Education to step up and be on their side.
Sec. King: Yes, I’m committed to protect the interests of borrowers and also to do what we can through the enforcement unit and the gainful employment regulations to make sure we do not have a repeat of Corinthian, to the extent we can avoid it.
Sen. Warren: And that’s powerfully important. Thanks for sitting through two rounds of questions on this stuff.
** In June 2014, the Department said “about 40,000 borrowers” were impacted by the Heald enforcement action. The Second Special Master Report noted that only 1,312 Heald students have received relief. In November, the Department announced that 85,000 former Everest students were affected by their joint enforcement action with the California Attorney General. Thus, this 1% of affected borrowers figure vastly underestimates the population, since it only includes Corinthian students covered by the two enforcement actions.