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Some of the student activists who are urging the U.S. Department of Education to grant more sweeping loan forgiveness for debt incurred at the now-defunct Corinthian Colleges campuses are set to receive $4 million to continue to press their case -- and possibly haul the department into court over the issue.
A bankruptcy judge on Wednesday approved Corinthian’s plan to liquidate its assets, earmarking about $4.3 million for a special fund for former students.
The money won’t go to students directly but will instead be used to pursue discharges of billions of dollars of federal student loans, according to Scott Gautier of Robins Kaplan LLP, which represented the student committee.
“The department has made clear that they’re not going to provide the loan discharges that these students deserve without a fight,” Gautier said. “Now we have resources to put up a fight.”
The student committee had initially sought to have Corinthian’s bankruptcy judge suspend the collection of debt from all former students and negotiated with the Education Department over widespread debt forgiveness. Instead it ultimately worked out a deal with Corinthian and its lenders that set aside the money for students in the company’s liquidation plan.
Armed with those new funds, the student committee will try persuading the department to grant more widespread debt relief for former Corinthian students, Gautier said, adding that a lawsuit remains very much on the table.
“Ultimately, if the Education Department can’t come around to granting collective discharges to all -- or groups of -- Corinthian students, the courts will decide this,” he said, adding that his firm “is not in any way scared or intimidated by the thought of litigation with the United States government, and it would be in the Department of Education’s best interest to recognize that.”
Department officials have announced that they will fast-track the debt relief applications of certain students who attended Corinthian-owned Heald College. In that case, officials said they already have enough evidence that Heald College misled students, thereby qualifying borrowers for a loan discharge.
But for other former Corinthian students, the department is still deciding on how the debt relief process will work. In the meantime, it is accepting individual claims from students. Officials have also hired a consultant to help wade through the legal issues involved in the discharges, known as defense against repayment claims.
The Corinthian ordeal has also prompted the Obama administration to start working on new regulations that would more clearly outline the circumstances under which the Education Department cancels federal loans because of a college’s fraud.
Student activists, state attorneys general and others have criticized the department’s debt relief efforts as inadequate because most former Corinthian students are being required to individually submit claims supported by evidence of fraud that may prove difficult, if not impossible, for them to get on their own.
The California and Massachusetts attorneys general have objected to the Corinthian bankruptcy plan over concerns that it would impede their ability to continue their respective lawsuits against the company.
Gautier, the student committee lawyer, said that it was made clear in court on Wednesday that the attorneys general would be able to continue to pursue Corinthian. Because of an idiosyncrasy in the Education Department’s current debt relief regulations, an actual finding against Corinthian in state court would be a boost to students’ claims for federal debt relief.
The Education Department has also sought to slow down the bankruptcy process, arguing it needed more time to track down whether money owed to the federal government was scattered across Corinthian’s dozens of bank accounts. The department said in a court filing that the way Corinthian transferred federal money across various accounts “apparently” violated federal rules.
Corinthian and its lender, Bank of America, both objected to the department’s push for more time, and the judge on Wednesday rejected the request before signing off on the liquidation plan.
