INSIDE HIGHER ED: Debt Relief Unveiled

Career College Central Summary:

  • The federal government will forgive the debt of thousands of former students of Corinthian Colleges, the Obama administration said Monday as it announced a new debt relief plan that will extend to all federal borrowers who can prove they were defrauded by their college.
  • U.S. Department of Education officials unveiled a series of loan forgiveness measures aimed most immediately at helping students who attended the now-defunct for-profit Corinthian chain. But officials are also opening up debt relief to a far broader pool of students, and said they’re anticipating claims from borrowers at other for-profit colleges found to have engaged in predatory practices.
  • Education Secretary Arne Duncan told reporters that Corinthian, which declared bankruptcy last month, “will not be the last domino to fall” in the for-profit education industry, which he criticized heavily in his remarks.
  • “This is our first major action on this but obviously it won’t be the last,” Duncan added.
  • For that reason, Under Secretary of Education Ted Mitchell said, the department is trying to create a loan forgiveness process that is “durable, not just for Corinthian but beyond.”
  • Officials said they will hire a consultant to provide advice not only on how to judge the existing 1,400 debt relief claims they have received in recent months, but also how to structure debt relief procedures going forward.
  • Parts of the debt relief process remain undecided, officials said. But what is clear is that taxpayers will be taking a large hit as the department opens up debt relief for the first time to a pool of potentially hundreds of thousands of borrowers.
  • Large Cost to Taxpayers
  • The department has already decided that approximately 40,000 students who took out loans to attend certain programs at the Corinthian-owned Heald College are eligible to have that debt erased. If all those former students applied, it would cost taxpayers about $544 million.
  • But if all of the approximately 350,000 Corinthian students who took out federal loans in the past five years successfully applied for debt relief, taxpayers would be on the hook for as much as $3.5 billion, officials said.

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