State Attorneys General Call on Feds to Forgive Fraudulent Student Loans

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State Attorneys General Call on Feds to Forgive Fraudulent Student Loans

For-­profit schools, charges letter sent to Secretary of Education, are undermining federal loan programs and depriving students of promised benefits of higher learning

Everest College in Santa Ana, part of the Corinthian Colleges chain, is shown in June. Corinthian has been selling off and closing down schools. (Photo: Don Bartletti / Los Angeles Times)

In a letter sent Thursday to Secretary of Education Arne Duncan, the attorneys general from nine states urged the Obama administration to offer immediate federal loan forgiveness to the many thousands of students who enrolled at various for-profit schools owned by Corinthian Colleges Inc.

Corinthian, based in California, is currently under investigation in numerous states for fraudulent loan practices and has also faced a federal lawsuit filed by the U.S. Consumer Financial Protection Bureau, which accused the company of illegally targeting potential students with predatory lending schemes that it knew they likely could not afford.

"Our greatest concern comes from certain large, predatory for-­profit schools that are actively undermining our federal loan programs, depriving  students of the education they promise and that the students deserve. These institutions seem to exist largely to capture federal loan dollars and aggressively market their programs to veterans and low-­income Americans," the letter (pdf) stated. It was signed by the leading prosecutors from Massachusetts, California, Connecticut, Illinois, Kentucky, New  Mexico, New York, Oregon, and Washington state.

Though Corinthian is not the only school accused of such practices, it has come to epitomize the worst habits of the for-profit, higher-education industry.

As the Los Angeles Times reports:

Debt carried by hundreds of thousands of primarily low-income students has been one of the biggest unresolved issues surrounding the near-collapse of Corinthian, which has been in the process of selling off and closing down schools after a crackdown by the U.S. Department of Education last summer.

The attorneys general are asking the Education Department to use a little-known federal regulation that allows students to avoid repaying loan debts for schools that broke state law by deceiving students.

"These cases against Corinthian have unmasked a school that relentlessly pursued potential students," the letter read, "promising jobs and high earnings, and preying on their hopes in an effort to secure federal funds."

The Huffington Post adds:

The request from state attorneys general, who have been called “the people’s lawyers” because of their role protecting consumers, stems from a provision in federal law that allows borrowers with federal student loans to formally apply for their debts to be forgiven if their school cheated them into taking on the debt. The provision is also written into the contracts that students sign with the government when they take out the loans.

Borrowers need only assert that their school violated their state’s law and that the violation played a role in their taking out the student loan. For example, if a school advertised false job placement rates for a nursing program and those claims influenced a person to enroll and take out federal student loans, that person could later apply for the debt to be canceled.

In December, 13 Senate Democrats, including Elizabeth Warren of Massachusetts and Dick Durbin of Illinois, urged the Education Department to use this provision to forgive debts incurred by Corinthian students. They pointed to the lawsuits filed by state prosecutors and the federal consumer bureau.

The move by the state prosecutors comes as former Corinthian students continue to mount a growing "debt strike" against the loans taken out to pay for their educations with the school. What started as a group of 15 students who announced they would no longer make payments has now grown to over 100 students. Last month, some of those students went to Washington, D.C. in order to discuss their situation with lawmakers and the Department of Education.

In step with the letter sent to Secretary Duncan on Thursday, the students are demanding the DOE not only intervene on their behalf to forgive the onerous debts, but also do more to end the systemic flaws of the federal loan process.

Recently, one of those students, Latonya Suggs, spoke with MSNBC's Melissa Harris-Perry to discuss the situation with Corinthian and broader problem of higher-ed student debt:

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