The Student Loan Write-offs Have Begun: 78,000 Students File For Debt Discharge After Corinthian Closures

Tyler Durden's picture

When Corinthian Colleges abruptly shuttered its remaining campuses late last month we asked if for-profit colleges will be the next multi-billion dollar taxpayer-sponsored bailout. That may have seemed like a bit of hyperbole on our part but in fact it was not, because as we explained then, students left out in the cold by Corinthian owed some $200 million in federal student loans and when the government forces an institution to close its doors (which is effectively what happened with Corinthian), students can apply to have their debt discharged. 

Because Corinthian is a for-profit institution, students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), we said that more likely than not, the government (i.e. taxpayers) would end up eating the cost of forgiving their debt. 

Fast forward three weeks and sure enough, the government is scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness. 

Via Reuters:

The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses.

 

More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.

 

The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.

 

Corinthian settled allegations about misrepresenting job placements with the California attorney general in 2007.

 

NCLC lawyer Robyn Smith said there was no precedent for the department to cancel student debt in the way the groups were urging.

 

"Unfortunately, they haven't used this authority before," she said.

 

The Department of Education said it had not decided how any debt relief would work.

Well Department of Education, allow us to tell you how the debt “relief” will work. You will end up being forced to write it off because you closed down the school.

And while your decision to shutter the college was likely the right move given the for-profit industry’s reputation for absurdly predatory recruiting practices, you have no one to blame but yourself for allowing these institutions to live off of billions in federal loans for years (while their CEOs pulled in millions in compensation), when you likely knew that in the end, they would have to be closed down once Congress got wind of how they went about luring students. 

The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged. Note that we have not used the term "canceled", because as we like to remind readers, liabilities are never "canceled", they are simply written off by the person for whom they are an asset.

Finally, it's worth noting that nearly every student displaced by a for-profit closure will have student loans because when tuition is double that charged by public institutions, taking out loans is the only option for 88% of attendees. In other words, when the government finally goes all-in on its for-profit crackdown, not only will every student have debt, but the outstanding amount will be about 36% larger than that carried by graduates of public schools. 

So yes, this could indeed wind up being a multi-billion dollar taxpayer sponsored bailout, and the first $200 million writedown is just around the corner.

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medium giraffe's picture

Bailout is the new black.

knukles's picture

Dontcha just love it.  Just like sub-prime mortgages (one example amongst dozens) the Federalies drive the public sector out of business, massive losses ensue, picked up by the taxpayer, the resultant consequence is more people then flock to a newly issued public sector alternative (community colleges... a la the plan already in place to expand community colleges) funded by the taxpayer (so the taxpayer is essentially on the hook twice, now) in which more new loans will be written (tax payer on hook 3 times.)
Just like the sub-prime housing market.

               The government could fuck up a wet dream

This is communism at work.  The state owns (eventually) all the means of production and nobody gets it!  Jesus, people!

PacOps's picture

The government does fuck up wet dreams.

Save_America1st's picture

all 78,000 requested the discharge over Twitter

#bailout

SumTing Wong's picture

If malfeasance can be shown, I'd be fining the hell out of the shysters and seizing whatever assets I could.

But I'm talking about Congress as well as these for-profit colleges.

SuperVinci's picture

This = why the next sentence is in reality true, shocking may it be.

America is a communist country.

Perseus son of Zeus's picture

SOFT Corinthian leather Bitchez!

Richard Chesler's picture

There's a lot of pretty, pretty ones 
That want to get you high 
But all the pretty, pretty ones 
Will leave you low and blow your mind 

We're all stars now in the hope show!


Creepy A. Cracker's picture

If you don't want to be stuck having to pay back a loan, DON"T TAKE OUT A LOAN.  Frick'n college "geniuses." 

My first interview question will now be: "Did you not pay back your college loan?"  If the answer is yes: Next - can't be trusted, has no basic math skills, and no doubt whiner to boot.

 

N2OJoe's picture

O gubmint! Bail out mah collage lowns!

Benjamin123's picture

The existence of loans raised the cost and makes it far more difficult to pay it had the loans never been available. Its the same as with housing. Credit forces you to use it by its very existence.

Creepy A. Cracker's picture

No, it doesn't "force" anything.  Many people still go to college working part time, doing semester on/off internships, etc.

I agree that the government and loans have driven prices up but it's still possible to not borrow.

BullyBearish's picture

Student loans:

"Government financial transmission mechanism providing easy money to the people who would spend it the fastest in order to boost the economy while taking those people OFF the unemployment roles"

MFL8240's picture

Cancel all the debt on everything including CC and houses and cars by printing more confetti.  Then default on the debt and lets start over we are too far gone.

 

N2OJoe's picture

Wait I need 3 mo's to get into debt first!

Seems like responsible people who live within their means end up losing in EVERY scenario...

p00k1e's picture

Free college for all! = bailout.

MFL8240's picture

So does 0% interest to these gangsters manipulating the markets.

p00k1e's picture

Try to pay zero percent interest. 

813kml's picture

Corinthian should have called itself a university instead of a college, you don't see respectable diploma mills like University of Phoenix having any problems.

fremannx's picture

The largest credit bubble in the history of the world is bursting and there is no way to stop it. Student loans are just a small bubble inside a much larger bubble that is bursting right now and will lead to a deflationary depression larger that the Great Depression of the 1930s. This Anatomy of a Bubble explains what is happening...

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...

J Pancreas's picture

This will be a major campaign issue we hear about for the next .gov presidential election. Assholes.

813kml's picture

Shrillary will promise to homeschool them all at the White House.

Pure Evil's picture

IT takes a Shrillary to raise an Idiocracy.

Bangin7GramRocks's picture

You fucking jerkoffs are at it again. These are people who were conned and "paid" for something they did not recieve. The college had no problem declaring bankruptcy and I'm quite sure the officers of the company get to keep their millions. The students should also get to discharge their debts. What the fuck is wrong with you motherfuckers!

gatorengineer's picture

You really can't be that much of a shill can you.  The idiots made bad decisions we all have.  They need to live with theirs

chunga's picture

The same can be said for SS recipients; if it became possible to "opt out" they'd be shit out of luck wouldn't they. 

LetThemEatRand's picture

In a just world, the suckers would be able to recover their money from the guys who took it by fraud (the individuals who made profit selling fake diplomas).  But those guys get to file corporate bankruptcy, and keep their millions as individuals.  There is a unique carve-out in bankruptcy law for the individual suckers who took out the loans, even though they were victims of fraud.  I wonder why that is.  

newdoobie's picture

Wait! I don't give a fuck about who screwed who... I got nothin to do with it

I don't want to pay for it!

If some asshole is responsible (public or private) make him pay, otherwise leave me the hell alone!

 

LetThemEatRand's picture

Ask yourself who is making you pay for it and get mad at that guy.  The CEO of Corinthian lives in a very large home (probably several, and a yacht or two), and he's no doubt quite happy to have you (and me) pay for the bad debt.  The students got nothing.  They took out a loan for an education they did not receive.  If they get loan forgiveness, they start back at zero, and the CEO of Corinthian gets to keep his yacht and homes.  This was a private college.  Who was motivated to make us pay for it, and if you are left the hell alone how does that prevent someone else from doing it again?

sun tzu's picture

The government is making us pay for it instead of going after the CEO and others who profitted. It's the same with the housing bubble. The CEO stole the money from the suckers. It's between them and him, not them and us. 

Benjamin123's picture

No need to go after anyone. The students are simply allowed to default, by the grace of state power, and the bond owners take a de facto loss.

Immortal Flatulence's picture

Hence why I won't take classes at University of Phoenix. Bad decision. All fraudsters & Banksters will eventually get their comeuppance. It just sucks for the faithful to have to wait and wait and wait .... (insert symbol for infinity) ... for it to happen. Yet, happen it will.

In a related thought, at least while waiting, I have a decent lifestyle. When the TSHTF because of their greed, it will get ugly for all.

LetThemEatRand's picture

"These are people who were conned and "paid" for something they did not recieve."

Agreed, but there's a lot of blame to go around.  These colleges were a fraud from the beginning, and to the extent the officers do not go to jail, that's a travesty.  By the same token, the colleges would not have existed but for idiotic federally backed student loans and grants.  Well meaning perhaps, but extremely poorly implemented.  No loan should be given to a student to go to a school that prints diplomas for showing up.  The least culpable are the students, most of whom were poor, uneducated suckers who actually wanted to better themselves.  They got into debt up to their eyeballs because they believed they were going to raise themselves from poverty.    At least they were well intentioned, unlike the CEO and officers who knew what they were selling was snakeoil, funded by the taxpayer.  I never blame the sucker when someone takes his money by fraud.  The guys who stole it (and the idiots in government that gave the suckers a loan) are to blame. 

mygameon's picture

I think we should all recognize that our "non-profit" state universities would also be bankrupt if not for the redistribution of a trillion dollars of stimulus earmarked for infrastructure shovel ready projects that were not so shovel ready. Instead public employee union pensions at all universities were made whole in 2009 with this fleecing of we the tax payers.. Here in iowa several were given early retirement so new union members could be hired.

This is all a bunch of not knowing if the pot or kettle was first black when considering who is more corrupt (Corinthian vs universities) in the fleecing students of money for under valued degrees-acknowledging that many of them are equally responsible for the loan they entered into.

Either way we the makers keep feeding the takers and the politically connected class.

Looking forward to some public union thugs begging me for food in the future. Unlike the millennials that have been hanging weekends at our homestead, I will not grant these corrupt fuckers one ounce of mercy.

Ballin D's picture

If I sell you a cardboard shack for 100k, sell the debt, then go bankrupt, you still owe the debt holder the 100k.

 

These kids got exactly what they paid for - a terrible education from a terrible school.  They sure as shit werent complaining while getting straight A's without doing any meaningful work to earn it. 

 

Theyre not talking about writing off the debt from a kid who took one semester then ran for the hills.  Many of these are four year degrees. You dont accidentally enroll for 8 semesters. I could see the Dep of Education being responsible for each student's first semester for their failure of letting the school exist but even that would be stupid.

LetThemEatRand's picture

Even if you want to blame the uneducated, mostly poor "students" who thought they were bettering themselves, where do you stand on the individuals who sold the worthless degrees?  Do you think it's okay to let them keep the money they paid themselves from the corporation because the corporation filed bankruptcy after it was exposed as a giant fraud?  What no one in MSM is discussing is clawing back the profits to pay off the loans.  

It's not just ignorant poor who are fleeced, you know.  There are a few Wall Street types who make off with billions by committing fraud everyday.  Anyone here lost money in the market?   Funny how most ZH'rs want those guys strung up, but the students who fell for enrolling in a diploma mill have only themselves to blame.  Maybe the lesson from all of this is that we should stop bitching and suck the ball sacks of our banker overlords while blaming ourselves for being suckers.

sun tzu's picture

They should go to prison. What does that have to do with me?

Benjamin123's picture

All newborns are born indebted. Dumbasses, no one forced them to borrow!

Benjamin123's picture

No one owes anything in case of fraud, of a violation of contract. A commercial contract carries rights and responsabilities, services and payments. If one side does not deliver, the other doesnt have too.

Are you cool with fraud?

What about selling melamine spiked "milk"?

Did you drank the "milk", got sick and still plan on paying your debt to the grocer?

 

Amish Hacker's picture

But in order to have the debt forgiven, students will have to sign an affadavit swearing that they didn't really learn anything while in a Corinthian school. 

knukles's picture

And thus, no credits are transferable.  A social (Governmentally imposed) stain upon the non-governmental sector.

813kml's picture

In fairness, anyone stupid enough to sign up for a "college" that advertises on daytime TV is entitled to claim perpetual ignorance.

Ajax_USB_Port_Repair_Service_'s picture

I think Tom Bosley is an alumnus!

Ajax_USB_Port_Repair_Service_'s picture

Right. If they had only named it 'Korinthian Kollege' they could have attracted more 'students' in the target demographic.

buzzsaw99's picture

they aren't victims they are co-conspirators

Bay of Pigs's picture

This shit is surreal...

Rod Serling himself couldn't write a better script for this latest episode of the Twilight Zone.