April, 2015
Washington -- Several state attorneys general have demanded that the U.S. Secretary of Education cancel the debts of student borrowers who were defrauded by schools in the Corinthian Colleges, Inc., chain. They point to a "borrower defense" provision in law that gives the Secretary the authority to do so.
Ben Miller provides a good history of the law in "The Strange History of the Student Borrower Defenses Provision." His account comports with my memory of the discussion in the Department of Education two decades ago.
I agree with the attorneys general, but I expect that the Secretary may be reluctant to act as they wish, given that Corinthian students are only the tip of the iceberg when it comes to students who have been misled and defrauded. If I still worked at the Department, I would advise the Secretary to consider the following options, and any others along similar lines that provide relief.
• Invite the state attorneys general to help write the borrower defense regulation that was never written by the Department, and implement it as an emergency regulation without negotiated rulemaking.
• Consider using other powers available to the Secretary to give Corinthian borrowers relief. Under 20 USC 1082, the Secretary has broad authority to modify the terms and conditions of FFEL loans and to release and compromise them as he determines; under section 1087 he has the authority to apply the same terms to Direct Loans. These authorities should cover the types of loans in question.
• Consider writing down the amount of the loans substantially, based on what the borrowers would be paying back had they been, for their personal situation, in the most favorable income based repayment plan from the time they took out the loan, including various loan forgiveness options. In other words, cancel an amount now rather than waiting for a certain number of borrower payments.
• Create a pilot program with the Corporation for National and Community Service (a federal agency) through which Corinthian (and similar) victims would be given loan cancellation in exchange for public service through any of the programs of the CNCS.
• Ask the state attorneys general to look at other misleading and possibly fraudulent practices beyond the for-profit sector of postsecondary education. Twice in the past week I have been advised, by different sources, of questionable practices of public and non-profit schools that are certainly consumer unfriendly if not outright illegal. The state AGs need to look at these practices.
• Reflect on the fact that many if not all of the students victimized by Corinthian also were subsidized by Pell Grants, and many by the GI Bill. Costs associated with cancelling or writing down the loans of these students are only a part of the cost to taxpayers. If this helps get the students back into the economy as taxpaying citizens, it may be the best money spent. Taxpayers should be outraged at the waste of the Pell and GI Bill money, more so than the costs of loan write-downs.
• Thank the state AGs, and resolve to involve the states more in the oversight and financing of postsecondary education opportunity, so this doesn't happen again. This will require reshaping federal programs under the Higher Education Act, the sooner the better.
