The Education Department will forgive federal loans for some former Corinthian College students, announced Secretary of Education Arne Duncan on Monday.
Within three weeks, a "special master" will be selected to develop processes to apply debt relief for Corinthian students and others.
"This is our first major action on this but obviously it won't be the last," Duncan says.
In late April, embattled for-profit Corinthian Colleges Inc. announced it would cease operations and close all remaining campuses, displacing around 16,000 students.
The announcement came shortly after the Department of Education levied a $29.7 million fine on the company's Heald College system for allegedly inflating the job-placement statistics of graduates. On top of that, the California Bureau for Private Postsecondary Education had ordered Corinthian to stop enrolling new students at two locations in California.
Previously, students who took out private loans issued by Corinthian had a significant portion of their debt forgiven as the result of an ongoing lawsuit between the company and the Consumer Financial Protection Bureau.
If the loans of all 350,000 students from the past five years end up being forgiven, the cost could reach $3.5 billion, according to the New York Times' Tamar Lewin. However, department officials say historically just 6% of students whose colleges close actually apply for debt discharge.
Federal law gives students the right to debt relief if they are enrolled in a school when it closes or up to 120 days beforehand. The department's action extends the window for Corinthian students to June 2014, when Corinthian agreed to sell its colleges. It also allows students whose colleges were not closed to apply for relief under the "defense to repayment" provision, which has been used only a few times in the past 20 years.
Additionally, the Education Department is working with independent organizations and institutions that will provide volunteer advisors to help Corinthian students in deciding whether to pursue student loan discharges or transfer credit to another school.
"Loan forgiveness can't give students back the time they invested at Corinthian. But it will help them make a fresh start," wrote Undersecretary Ted Mitchell in the Education Department's blog.
While some have praised the move, others say it sets a dangerous precedent.
"It was a bad idea to make the U.S. Department of Education the banker for students as well as the regulator of colleges," says Sen. Lamar Alexander (R-Tennessee), chair of the Health, Education, Labor, and Pensions Committee.
Yet others say the move did not go far enough and that blanket relief is necessary to ensure all students will get what they need (Lewin, New York Times, 6/8; Mitchell, "Homeroom," U.S. Department of Education, 6/8).
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