Corinthian’s Debt Relief Program Could Signal Shift in Federal Approach to Student Loan Crisis

Posted By Derek Johnson on June 30, 2015 at 12:20 pm
Corinthian’s Debt Relief Program Could Signal Shift in Federal Approach to Student Loan Crisis

Previous generations of students more or less understood the trade-offs involved in borrowing to pay for college: better job prospects and earning power in exchange for a decade or more of paying back lenders. In an economy still struggling to find its footing in the shadow of the Great Recession, however, changing conditions and a rising chorus in favor of widespread college debt relief have called into question whether the current model is working.

After months of protest and a growing debt strike, students at Corinthian Colleges will be getting targeted student loan relief. Following a federal investigation that revealed a bribery scheme by some of the schools to boost their job placement rates, the Obama administration announced that many of the affected students will be eligible, under certain conditions, for forgiveness and repayment of their college debt.

The question now becomes whether this action is an isolated incident, or if it marks the beginning of broader efforts to address the student debt crisis.

While a college degree remains the best pathway out of poverty – the Pew Charitable Trusts estimates that nine out of ten low-income students who graduate college rise to a higher economic bracket – the sheer scope of the financial burden placed on students who attend college has been rising at an alarming rate.

Billions in student loan debt, 2007 to 2014. Source: Board of Governors of the Federal Reserve

Total outstanding student loan debt nationwide has nearly tripled in just the last decade, from $500 billion in 2006 to nearly $1.4 trillion in 2015. In addition, college tuition and board has become progressively more expensive. As a result, students are borrowing more than ever before. According to the Institute for College Access and Success, in 2012, 71 percent of all graduating college students had student loan debt. Students averaged $29,400 in outstanding loans, a 25 percent increase in just the past four years.

It’s not yet clear whether the debt relief for Corinthian students is a warning sign for a forthcoming bubble burst or simply an isolated case. There are significant legal hurdles that students had to clear in order to be eligible for loan forgiveness. What’s more, the main thrust of the program announced by the Obama administration only affects a narrow sliver of the student population: students at Corinthian Colleges who attended the schools within 120 days of its closing.

For Corinthian students not meeting that criteria, forgiveness “hinges upon evidence that a student was defrauded or that some state law was broken”, according to Alan Pyke at Think Progress. In addition, students accepting relief must treat the classes they took at Corinthian as worthless; any attempt to transfer the credits to other institutions will disqualify them from receiving aid.

Yet it appears the administration is leaving the door open to offer deals to students at 28 other colleges and universities currently under investigation for similar practices. A little-publicized provision in federal regulations known as “defense to repayment” offers forgiveness if a student provides evidence that a college’s actions violated state law and influenced his or her decision to take out student loans. In a press release for the Corinthian relief program, the Department of Education announced it would be appointing a Special Master to “develop a broader system that will support students at other institutions who believe they have a defense to repayment.”

Thus far, the Obama Administration seems to be targeting for-profit schools, which often charge more up front and offer degrees with questionable value to the job market. It’s also worth asking whether an administration that declined to bail out homeowners during the much larger mortgage crisis would ever provide anything more than targeted debt relief to students. Even a loosening of restrictions to other specific schools would be a drop in the bucket compared to the collective debt owed by today’s students. Still, with trends indicating the problem will only continue to get worse, last week’s decision to broaden the program beyond Corinthian students indicates that policymakers are warming to the idea of more widespread student debt relief measures.

Derek Johnson
Derek Johnson is a writer, journalist and editor based out of Virginia. He received a Master’s degree in Public Policy at George Mason University and a bachelor’s degree in Communication from Hofstra University.

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