Debt Forgiveness and Liquidation

The messy dismantling of Corinthian Colleges is moving through a federal bankruptcy court, as a judge mulls whether to halt loan repayments for up to 350,000 former students and the defunct for-profit chain seeks the court’s approval for the fire sale of its remaining assets – including trademarks, furniture and even old diplomas and typewriters.

Last month the U.S. Department of Education released a plan for Corinthian students to seek to have their debt erased.

As a result, the roughly 15,000 students who in the last year attended the 28 Corinthian campuses that shut down in April are eligible under the department’s closed-school loan discharge policy. ECMC, a nonprofit student loan guarantor, purchased most of the rest of Corinthian, creating the new Zenith Education Group to run it.

And, in an unprecedented action, the feds also said students who feel they were defrauded by their Corinthian campus, or that their campus broke state laws, can apply for debt forgiveness.

That means large numbers of the 350,000 students who took out loans to attend a Corinthian institution during the last five years could be eligible for some form of debt relief.

However, last week the department said it had received only 4,500 applications for closed-school discharges, 1,400 borrower-defense claims and 850 online requests for the government to halt debt collection.

Students must file their claims in bankruptcy court by July 20. The department last week announced that it had hired Joseph A. Smith, a high-profile mortgage settlement claim veteran, to oversee the debt-forgiveness process. And the department has created a web page with information for former Corinthian students who may be eligible. (Note: This paragraph has been changed from a previous version to clarify that the July 20 deadline applies to bankruptcy court claims, not debt-relief filings with the department.)

In the meantime, a group of former Corinthian students has asked the bankruptcy court to temporarily suspend the collection of all 350,000 students’ debt payments until the court can decide who is responsible for repaying them. The U.S. Department of Justice selected the group of seven former students to represent the interests of all Corinthian students.

In a hearing Tuesday, the federal bankruptcy court judge, Kevin Carey (not the Kevin Carey at New America), did not grant that freeze on repayments. But he did chide the department for not doing more to get the word out about its debt-forgiveness process.

“I’m not convinced that notice has been sufficient or broad enough to put people in a position to ask for it,” Carey said, according to a report by Reuters. He asked the department’s lawyers to find a better way of reaching Corinthian students.

The Education Department is using its records to identify borrowers who may be eligible for debt relief, said a department spokeswoman. “We plan to contact those borrowers to make them aware of their options through multiple channels, including email and regular mail,” she said via email. “We are also looking into other options, like advertising. We welcome the help of stakeholders and advocacy groups to help us get the word out.”

Ben Miller is senior director of the postsecondary education program at the Center for American Progress. He previously worked at New America and at the Education Department.

Miller asked why the feds wouldn’t temporarily halt collection proceedings on defaulted loans by Corinthian students while some of those former students work on their defense-against-repayment petitions and the special master locks in the debt-relief process.

“If they might get them discharged, why not pause efforts for defaulted loans for a few months just to work out the details?” he said via email. And if those students aren't eligible for a discharge, "then all you’ve lost is a couple of months of collection efforts. It’s not like the obligation is gone.”

Furnishings For Sale

The Obama administration’s Corinthian debt forgiveness plan was unveiled after months of prodding by Senate Democrats and consumer groups, who argued that students were hoodwinked into taking out loans to attend a fundamentally fraudulent operation.

The process may soon apply to students from other for-profits, too.

Arne Duncan, the education secretary, said recently that Corinthian “will not be the last domino to fall” in the for-profit education industry. “This is our first major action on this but obviously it won’t be the last,” he said.

As a result, the department sought to create a special-master-led process that is “durable, not just for Corinthian but beyond,” said Under Secretary of Education Ted Mitchell.

Yet the department stopped short of allowing Corinthian students to seek to have their debt erased as part of a group action, rather than applying individually. Consumer groups, Senate Democrats and former Corinthian students who went on “strike” to stop paying their loans had pushed for the group option.

Even so, the department already has decided that roughly 40,000 former students of Corinthian’s Heald College are eligible to file borrower defense appeals. That’s because the feds determined that Heald deceived students with nearly 1,000 instances of misleading job placement claims. The department slapped a $30 million fine on Corinthian based on those findings.

The company, or the lawyers that represent what’s left of it, don’t have that money. But the federal government would be on the hook for $544 million if all of those students applied.

The 12 Heald campuses, all of which are on the West Coast or in Hawaii, were considered Corinthian’s crown jewels prior to the chain’s collapse last year. The company bought Heald for $395 million in 2010.

Now Corinthian is seeking to sell its Heald campuses and other assets. A K-12 charter school outside Sacramento will buy one of the campuses, the Sacramento Business Journal reported.

Heald is also selling its trademarks, copyrights and domain numbers as part of the bankruptcy court’s Chapter 11 process. For sale is its trademark: “Get In. Get out. Get ahead.” So is the www.HealdCollege.com domain, as well as “historical” items from the 150-year-old institution, including old diplomas and typewriters.

Assets from the for-profit chain’s other brands -- Everest and WyoTech -- are also for sale. Earlier this week, Corinthian filed a notice in court of its proposed sale of “any and all furnishings, fixtures and equipment” from the former Everest Institute College located in Cross Lanes, West Virginia.

An outfit called Liquid Asset Partners is the purchaser, according to the filing. The price: $45,000.