College was supposed to be a stepping stone to a better life for Jessica King. Instead, her decision several years ago to go to school and train to become a medical assistant has left her mired in debt that she can’t escape.
King, 33, has about $32, 000 in student loans from the nine months she spent attending a college multiple government agencies and law enforcement officials have accused of engaging in fraud. King says her own experience matches up with what’s laid out in the lawsuits and probes; she took out loans to attend an Everest College campus in Virginia based on promises that she would land a decent-paying job as a medical assistant.
But after graduating in 2008, she never got work in her field, despite sending out over 100 resumes, and has struggled to repay her loans as a result. She’d hoped she could use her schooling to help her make more money to support family. But instead, the debt has become an albatross, keeping her from pursuing another degree and reach other economic milestones.
Right now, her loans are in default, which means she can’t take out new ones to go back to school, her credit is suffering and she’s working as a bartender, a cash-heavy business, in order to prevent her wages from being garnished to pay off her loan.
Government officials have promised on multiple occasions to provide students wronged by Corinthian Colleges, the parent company of the school King attended, with “every penny” of debt relief to which they’re entitled. And yet thanks to some technicalities, King can’t access that relief.
“I can’t get married because my boyfriend would take on this debt, I can’t finance my washer and dryer, my car is in my mom’s name, ” she said.
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Expanded debt relief, but with caveats
In the wake of Corinthian’s collapse earlier this year, the government expanded options for debt relief for borrowers who believe they were affected by the company’s alleged fraud
One of the major components of the expanded debt relief is a legal tool called defense to repayment that federal student loan borrowers can use to ask for loan forgiveness if they believe their school violated state law. Very few borrowers filed so-called borrower defense claims prior to the Corinthian collapse and so the procedures for filing them and the Department’s criteria for adjudicating them was relatively unclear. But in the wake of Corinthian’s downfall, with thousands of students clamoring for debt forgiveness, the Department decided to establish a more formal borrower defense process.
As part of the expanded debt relief process, Corinthian borrowers who file these claims can have collections stopped on their loans while they wait for the Department to determine whether their debts will be forgiven. .
But so far, some borrowers, like King, can’t take advantage of either aspect of this process, even if they were victims of Corinthian’s fraud, because of the type of federal loan they have. The expanded debt relief process only applies to borrowers with Direct Loans, or those issued directly by the federal government.
Borrowers, like King, who took out their loans under the Family Federal Education Loan Program (FFEL), which was discontinued in 2010, so far aren’t eligible for relief. Those loans are technically held by another company, but backed by the federal government.
In other words: Borrowers in both loan programs could have attended the same school at the same time and generally had the same experience, but only one group is currently eligible for the expanded debt relief. It’s unclear how many FFEL borrowers would be eligible for relief if the process was expanded to include them, but in just the last three years of the FFEL program, borrowers used more than $2 billion to attend Corinthian schools, according to a MarketWatch analysis of federal student loan data.
History to blame
History may be in part to blame for these borrowers’ predicament. In the 1990s, lawmakers specified that the Education Department has the authority to grant forgiveness to borrowers with Direct Loans under a borrower defense claim.
A panel of stakeholders was supposed to clarify the process for defense to repayment claims filed by FFEL borrowers, back in the 1990s, according to Ben Miller, the senior director of postsecondary education at the Center for American Progress, a left-leaning think tank. But they ultimately abandoned that process, he said.
Borrowers — Corinthian or otherwise — with FFEL loans do have a right to ask for debt forgiveness from whoever currently owns the loan if they believe their school violated the law, according to Robyn Smith, an of counsel attorney with the National Consumer Law Center and a staff attorney at the Legal Aid Foundation of Los Angeles. In some cases they may be filing their claim with the original lender, in others it may be with another lender where the loan was transferred, and if the loan is in default they could be applying for forgiveness through the Department. That right is spelled out both in regulatory language and in the loans’ promissory notes, according to Smith.
But the regulatory language is slightly different from the language giving the Department the authority to forgive Direct Loan borrowers’ debts under defense to repayment. The Department hasn’t been clear about how former Corinthian students with FFEL loans can assert their rights, lawyers and borrower advocates say.