Defrauded Corinthian students get forgiveness on only part of their federal loans

The Department of Education has begun notifying some former Corinthian Colleges students that it will forgive only one-half or less of their federal student loans, even though the students were defrauded by the now-defunct schools.

The action is part of Education Secretary Betsy DeVos’ push to ease regulations governing for-profit schools. DeVos says she wants to protect taxpayers’ money, but critics say that the Trump administration has deep ties to for-profit colleges and is putting industry interests ahead of students.

Under the Obama administration, the Department of Education began to crack down on Corinthian in 2014, restricting its access to federal student aid after concerns that the for-profit chain of colleges was falsifying the job placement rates of its graduates.

Corinthian — which was based in Santa Ana and operated schools under its Everest, Heald and WyoTech brands — then sold off a majority of its schools to a nonprofit student loan servicer. A year later, Corinthian abruptly closed its remaining campuses and filed for bankruptcy protection.

Two weeks ago, Sarah Dieffenbacher, a California healthcare worker, received a letter saying the agency would only discharge 50% of her student loans. The mother of four had borrowed about $67,000 to train as a paralegal at Everest College in Ontario, part of the Corinthian chain, but was unable to land a single job in the field.

Dieffenbacher said the decision was utterly unfair.

“I think it’s an insult to my intelligence. I think it’s a kick in my face. I think it’s degrading,” Dieffenbacher said. “I received no valuable education from them.”

Alec Harris, Dieffenbacher’s attorney with the Project on Predatory Student Lending at Harvard University, said: “There is no justification for making Sarah and others pay for having been cheated. The [Education] Department’s actions are incoherent and vindictive.”

Education Department press secretary Liz Hill defended the agency’s decision.

“We have said from the beginning that students whose earnings are at 50% or more of their peers who attended a gainfulemployment passing program will receive proportionally tiered relief to compensate for the difference and make them whole,” Hill said in a statement Friday. “This method treats students fairly and treats taxpayers fairly.”

The gainful-employment rule was designed to ensure that graduates would be able to earn enough money to pay off their student loan debt. DeVos has appointed a special committee to rewrite the rule.

DeVos announced in December that she was breaking with the Obama administration’s practice of fully wiping out the loans of defrauded for-profit students and would grant some of those students only partial relief.

“No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly,” DeVos said in December. The new process will be more efficient and “protects taxpayers from being forced to shoulder massive costs that may be unjustified,” she said.

Hill would not provide data on how many students have received partial-relief announcements. The agency has tens of thousands of claims from students pending.

The relief grant to Dieffenbacher was made by comparing the average earnings of students in her program to the average earnings of students who graduated from similar programs at other schools, according to the department’s letter to her.

Student advocates have argued that the formula does not take into account whether Corinthian graduates are employed in the fields of their study or are simply working other jobs.

Such is the case with Dieffenbacher, 40, who was unable to get hired in the legal field. She says the school lied to her about credit transfers, job placement prospects and the quality of her education. She went on to train in a different field and now works as a phlebotomist.

“If you want to show me a degree from Everest that I can use to proceed in the legal field, then I would call it value,” Dieffenbacher said. “How can you value something that doesn’t exist?”

Dieffenbacher said that her entire income goes to support her children and that she has no money to pay off the loan. She said she will not accept the agency’s decision. Dieffenbacher is also suing the department in a parallel case to stop it from garnishing her wages.

Clare McCann, a higher education expert with the New America Foundation, said DeVos was shortchanging students who have been cheated out of their money, time and career prospects.

“The formula that the department designed is meant to give a minimal amount of the relief to harmed borrowers,” McCann said. “It is completely possible that somebody could be working full time in a position unrelated to their fields of study and get little to no relief on their loans.”

The Obama administration went hard after the for-profit sector, closing down defunct for-profit chains, including Corinthian, and putting in place tougher regulations. Under President Obama, tens of thousands of students deceived by Corinthian and other schools had more than $550 million in federal student loans canceled in full.

The Trump administration has had a friendlier stance toward the for-profit industry.

DeVos, an advocate of for-profit schools, froze the regulations put in place by the Obama administration. Her office also has been assisting a suspended accrediting agency that oversees for-profit schools in trying to come back to life.

DeVos’ government ethics forms showed she has investments in companies connected to the industry, according to the Center for American Progress, a liberal think tank.

Last summer, the Trump administration announced it had picked a former official at for-profit DeVry University to head an Education Department unit that polices colleges for student aid fraud.

And President Trump ran the now-defunct Trump University, a for-profit real estate school. Trump later paid $25 million to settle a class-action lawsuit that alleged the school committed fraud.

A spokesman for Career Education Colleges, the main lobbying group for the sector, was not immediately available for comment.

Rick Hess, head of education policy at the conservative American Enterprise Institute, said DeVos’ approach was more responsible.

“Any of us who has ever taken a loan for a house or car or a degree would like 100% loan forgiveness. We also pay taxes and we want people who borrow public dollars typically to repay them,” Hess said. “But I think that what this administration is getting right is trying to strike that balance between respecting the rights to wronged borrowers and respecting the rights of taxpayers.”

Times staff writer Samantha Masunaga contributed to this report.

UPDATES:

10:10 a.m.: This article was updated with comment from the Education Department.

7:30 a.m.: This article was updated with background information on the closure of Corinthian Colleges and on President Trump and Education Department officials’ histories with the for-profit college industry.

This article was originally published at 6:50 a.m.