Corinthian School Loan Relief Plan Raises Repayment Concerns

April 2, 2018 Emily Wilkins

This analysis was first available to Bloomberg Government subscribers.

Tasha Rincon was there from the beginning. When she realized Everest College had misled her, she says, into thinking she could become a probation officer with her associate degree in criminal justice, she and other students pushed the Education Department to forgive loans when colleges defrauded students.

Now, she’s unsure how much of her $48,000 in loans—loans she claims Everest told her she would never need to take out—will be discharged.

Other students who attended Everest and other schools owned by Corinthian College Inc. got a full discharge under the Obama administration. But the Trump administration has crafted a formula that may only deliver partial loan relief. Rincon, who first filed her claim in April 2015, will now be judged under the new formula, which compares similar education programs — based on what the typical graduate earns.

From the start, Education Department officials emphasized the new formula was meant to not only provide fair treatment for students, but also ensure students got relief in a timely matter and was fair to the taxpayers ultimately footing the billto forgive the loans, estimated at about $14.9 billion over the next 10 years.

Rincon, however, isn’t only concerned about her paycheck. Everest, she said, told one lie after another—first about the cost of attending, then about the value of her degree, and then about the school’s job resources. The for-profit Corinthian closed its campuses and filed for bankruptcy in spring 2015 after losing federal funding. In October 2015, a federal district court judge ruled the school had misled students and engaged in deceptive practices.

“If I had committed fraud against someone, I would be in jail right now,” she said. “They should have paid the restitution to discharge all the people who had been defrauded, period.”

Figuring Forgiveness

The Education Departmentproposed a discharge formula in December that uses data on how much graduates in a program— say, information technology or cosmetology—earn. After a borrower files a claim to have their loans discharged, the department will look at the average or median amounts earned by a graduate of their type of program and compare it to how much graduates in similar study programs at other colleges earned.

If the average graduate from the borrower’s program earned less than half the income of their peers at similar non-Corinthian programs, the borrower would receive full forgiveness. Otherwise, the borrower would only have part of their loan forgiven.

However, most of Corinthian’s schools—Everest, WyoTech and Heald—shut down in April 2015, before a July 2015 deadline to report graduate earnings data. Some schools never reported how much their graduates earned, complicating the Education Department’s discharge calculation efforts.

Instead, the department is using Social Security data to determine the average and median earnings of each Corinthian borrower who filed a claim, said Education Department spokeswomen Liz Hill. Department officials said using an average of Corinthian claimants’ earnings will ultimately work in favor of the students as some claimants did not necessarily graduate, but their earnings will be compared to graduates of other schools.

The department uses either the average or the median for the comparison, based on whichever is more favorable for the student submitting the claim.

Comparing programs, rather than individual students, also helps even out differences in individual claims, department officials said. A student who attended a poorly performing program but landed a good job due to other factors will not be judged by their own earnings but by how much the average of their peers in the program earned.

Fast Relief or Full Relief?

Shortly after the department announced the change, Acting Education Undersecretary James Manning suggested a formula would lead to a faster relief process, which should benefit student borrowers like Rincon.

“Now that that the Department has the right business processes and a solid infrastructure in place, we expect to move through the existing claims steadily as well as any claims submitted by Corinthian borrowers in the future,” Manning said in January, noting the department had 37,000 pending claims from Corinthian students. Another 46,000 claims have been submitted by students at other schools.

The department has yet to determine whether there will be other school-specific formulas for other colleges where there is unreported data.

While the Obama administration provided complete discharge, officials who crafted the rule left the door open for partial discharge of loans, according to Clare McCann, who worked on higher education policy with the Obama administration.

McCann said that while using earnings data wasn’t a bad idea, the Trump administration formula was unreasonable. For students to get relief, they’d have to show graduates of their program made less compared to similar programs.

But, she said, associate degree programs, like Rincon’s, would only be compared to similar degree programs at for-profit schools, not similar programs at public community college schools where earnings might be higher. Studies suggest that the earnings gap between Corinthian students and other for-profit students would be smaller than that between Corinthian students and public institution students, reducing their possible forgiveness amounts or eligibility.

“It strikes me as an attempt to minimize the amount of relief that will ever go out the door without regard to what kind of education the borrower received or what happened to them,” McCann said.

For Rincon, it was the government that allowed her school to take federal funding and it’s the government that should forgive their loans. After trying unsuccessfully for years to use her degree, Rincon said she now stays at home with her daughter. She is protesting by refusing to pay the approximately $600 a month in loan repayments she owes to the government.

“I feel the government did it because there was too many of us, but that’s not our fault,” she said. “They should have been keeping a better eye on them.”

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