Nine States Demand Education Department Forgive Everest Student Loans

The letter from state attorneys general to Education Secretary Arne Duncan also called for a clear process to be developed for defense to repayment claims.

Nine state attorneys general called today for the Education Department to forgive the loans of students who were deceived by Corinthian Colleges, the for-profit college giant that is being shut down in the wake of numerous investigations. The states include Massachusetts and California, which have filed lawsuits against Corinthian alleging numerous violations of state law by Corinthian and its largest for-profit chain, Everest Colleges and Universities.

The letter, written to Secretary of Education Arne Duncan, could be a significant development in the movement to forgive the debts of former Corinthian students. It also lays out a set of proposals that could lend help to indebted students at other schools that have broken the law.

An obscure provision in federal law allows the Education Department to discharge the loans of students whose schools committed acts that "would give rise to a legal cause of action … under applicable state law." But the Department has largely stayed silent with regards to so-called "defense to repayment" claims: it has not outlined a process by which students can file them or even disclosed if any such claims have ever been granted.

Because the defense to repayment claims rely on state law, the voices of the state attorneys general may carry weight in the Department's consideration of such claims, 300 of which were submitted by the department by a group of Corinthian student activists last week. The letter to Duncan lays out in detail the alleged violations by Corinthian, which include misleading students about job placement rates, transferability of credits, expected earnings, private loans, and financial aid.

In the letter, the state attorneys general also call for the Department of Education to establish a clear, transparent process for students to file defense to repayment claims if their schools have broken state law. The criteria it suggests the department use to evaluate such claims, which include submissions by states of investigative material into schools' wrongdoing and administrative hearings by the department to adjudicate claims, could also have wide-ranging benefits for students, not just those at Corinthian.

New York attorney general Eric Schneiderman, who signed the letter to Duncan, reached a settlement for $10.5 million with another for-profit school, owned by the large public Career Education Corporation, for inflating job placement rates. Eileen Connor, a legal aid lawyer who represents several former students, said the states' proposal "could be very helpful" to her clients.