Senate Democrats Urge U.S. to Tear Up Corinthian Students’ Loans

Thirteen U.S. Senate Democrats are pushing Education Secretary Arne Duncan to wipe out federal loans given to students who enrolled in a troubled for-profit college that’s being dismantled amid federal and state investigations.

Sen. Elizabeth Warren (D., Mass.) and 12 other Democrats, sent a letter Tuesday urging Mr. Duncan to “immediately discharge” federal student loans for students at schools owned by Corinthian Colleges Inc., which reached an agreement with the federal government over the summer to dissolve itself.

An Education Department spokeswoman, Denise Horn, didn’t comment on the specific issues raised by the letter but said the agency appreciates “the senators’ concerns for the welfare of Corinthian students” and would continue “to work on behalf of students’ best interests.”

By taking out student loans, borrowers “are making a serious financial decision that will affect them for years to come,” the lawmakers wrote. “If colleges fail to hold up their end of the bargain—if they break the law in ways that bear on their students’ educational experience or finances—students should not literally be stuck paying the price.”

The lawmakers argue that the Education Department has “broad authority” to cancel student loans if schools violate students’ rights. They cite a provision of a federal loan agreement giving students the right to challenge collection of their loans if their school violates state law.

Corinthian, which owns schools operating under the Everest Institute, WyoTech and Heald names, faces numerous state and federal investigations and lawsuits. In September, the Consumer Financial Protection Bureau sued Corinthian, alleging it inflated tuition costs, misrepresented students’ future job prospects and engaged in aggressive debt-collection practices. The company disputed the allegations, saying that the CFPB mischaracterized the company’s practices and wrongly disparaged the company’s practices.

Attorneys general in Massachusetts and California have also sued Corinthian, making similar allegations.

A Corinthian spokesman, Kent Jenkins, criticized the Senate lawmakers for drawing conclusions about the company’s conduct. “The authors of this letter take the deeply unjust position that the federal government should act on the basis of unproven allegations which are being vigorously contested in court,” Mr. Jenkins said in a statement. “Their logic is dismayingly clear: Anyone who has been accused of anything is presumed guilty.”

Last month, Corinthian reached a $24 million deal to sell 56 of its campuses to a newly formed unit of Oakdale, Minn.-based ECMC Group, which provides guarantees for federal student loans and owns a student loan debt collection agency.

Consumer advocacy groups and other critics question the value of the degrees offered by Corinthian’s schools and argue that the government should simply forgive students’ debts.

In a blog post last week, U.S. Undersecretary for Education Ted Mitchell defended the sale saying it would improve the educational prospects of nearly 40,000 students, around 20% of whom are within three months of graduating. “The last thing we want to do is make them start over, especially when so many are close to finishing,” Mr. Mitchell said.

Write to Alan Zibel at [email protected]. Follow him on Twitter at @AlanZibel

Note: This article has been updated to include a comment from Corinthian spokesman Kent Jenkins.

Correction: An earlier version of this article misstated that an attorney general in Connecticut sued Corinthian.