The $1.1-billion judgment California Atty. Gen. Kamala D. Harris won Wednesday may not pull any money out of the now-defunct Corinthian Colleges. But a judge's findings that the company misled students and violated the law could bolster Corinthian students' case for federal debt forgiveness.
San Francisco Superior Court Judge Curtis Karnow found the for-profit college operator, which filed for bankruptcy protection in May, provided untrue or misleading statements about graduates' job placement rates, duping students and investors.
So far, the Department of Education has offered loan forgiveness if students attended a Corinthian school that closed in April, and if the college operator defrauded the student or engaged in actions that violated state law. Students must apply to receive loan forgiveness.
The judgment Wednesday affirms that the company violated California state law and give students a stronger argument that they should be entitled to debt forgiveness, said Robyn Smith, a senior attorney with Legal Aid Foundation of Los Angeles.
"This judgment should form a basis for student loan relief for students," said Smith, who is working with former Corinthian students to apply for debt relief. "I would argue all students covered by this judgment get automatic relief" without having to apply.
But whether the Department of Education agrees is unclear. Smith said the federal government hasn't said whether "it would recognize this type of default judgment." A Department of Education spokeswoman said the agency was also reviewing the judgment.
The Department of Education has taken steps to forgive loans for Corinthian students, who say they went into debt for a useless education. But some students and consumer attorneys have criticized those efforts as too narrow and cumbersome. They have urged the department to forgive all outstanding loans taken out by Corinthian students.
"It is really going slow," Smith said. "We don't know if there will be actual justice for those harmed by Corinthian."
The Department of Education is expected to announce Friday that it is making it easier for students from 91 additional Corinthian campuses to get relief. The agency so far has approved loan discharges worth more than $130 million, for 8,800 former students. Since 2010, Corinthian had enrolled nearly 350,000 students who took out federal loans totaling about $3.5 billion.
The California judgment issued Wednesday applies to Corinthian students as well as those who attended the company's Heald, Everest College, WyoTech, Everest's online programs and Everest College Phoenix.
Corinthian was faulted for advertising programs or degrees it didn't offer, such as training programs for X-ray and dialysis technicians, according to court papers.
The judgment found that Corinthian and its subsidiaries had unfair and unlawful debt-collection practices, including barring students from attending classes if they were behind on loan payments, and that they failed to disclose their role in the Genesis loan program.
The judgment orders restitution of $820 million for students. But the money probably will be hard to retrieve. When Corinthian filed for bankruptcy in May it listed liabilities of $143 million and only $19.2 million in assets.
Harris' office has the authority to distribute whatever funds it obtains from the judgment to students who attended Corinthian and its related schools in California from 2010 onward.