LOS ANGELES (CBSLA/AP) — Nearly 35,000 California students who attended Santa-Ana based Corinthian Colleges will not have to repay any the remaining balance of their private student loan debt, the California attorney general’s office announced Thursday.
In a deal reached with Balboa Student Loan Trust, California Attorney General Xavier Becerra reported that $67 million in debt has been immediately forgiven for 34,971 Californians who took out private loans to attend the now defunct Corinthians Colleges.
“In the coming weeks, thousands of defrauded Corinthian students will receive a letter in the mail informing them that their loans have been fully forgiven. We hope this delivers some measure of closure and peace of mind,” Becerra said in a statement.
Of those effected students, 23,473 are in the Los Angeles area.
Corinthian Colleges was the nation’s largest for-profit educational institution before it collapsed in 2015 amid a cash shortage and fraud allegations. The collapse left thousands of students in the lurch without a degree, but saddled with heavy student loan debts.
Corinthian Colleges, which operated more than a dozen campuses in California, operated under names including Everest College and WyoTech College.
A federal class-action lawsuit was filed in 2016 by former students against the companies that bought Corinthian’s loan debt, including Balboa, alleging they knew Corinthian was accused of massive fraud when they bought the debt.
A federal court in May ruled in the lawsuit that the Education Department violated privacy laws with regard to students defrauded by Corinthians.
Immediately after Corinthian Colleges collapsed, the Obama Administration announced a debt relief plan to make it easier for students who had attended the now-defunct school to get rid of their federal loans.
However, in a break with Obama administration policy, Education Secretary Betsy DeVos announced in December that some students cheated by the Corinthians collapse would only get a part of their federal student loan forgiven. In order to determine how much to forgive, the agency analyzes average earnings of graduates from similar programs.
But a California district court ruled May 25 that the department’s use of Social Security Administration data in order to calculate loan forgiveness violates the Privacy Act. The court ordered that the Education Department stop the practice and stop debt collection from these students.
DeVos argued the approach of the Obama administration left room for potential abuse and unfairly burdened taxpayers who ended up paying for those loans with their taxes. DeVos said her new procedure will take into account the value a student received from their education and compensate them for what they didn’t get.
But critics slammed the new rule as unfair since tens of thousands of Corinthian students have already received full loan discharge under the Obama administration. They said some students will not be able to get a full refund just by virtue of working a minimum-wage job in an unrelated field and making some income.
One of the plaintiffs in the suit, Jennifer Craig, borrowed $9,000 to attend a Corinthian medical insurance and billing program in 2014, but she never received her diploma because the school shut down in 2015. She was unable to get a job in her area of study because the school did not provide her with the necessary practical training. The Education Department only forgave 20 percent of her loan. Craig says that she and her husband live in poverty and are unable to pay off the remaining 80 percent.
The Obama administration cracked down hard on for-profit colleges accused of fraud and shut down Corinthian and other major chains and tightened regulations for the schools. The administration spent $550 million to fully forgive the loans of tens of thousands of students.
There are currently nearly 100,000 claims from students still pending at the department.
(© Copyright 2018 CBS Broadcasting Inc. All Rights Reserved. The Associated Press contributed to this report.)