A revolt is growing as more people refuse to pay back student loans
A revolt is growing as more people refuse to pay back student loans
By Danielle Douglas-Gabriel, Washington Post, 3/30/2015, original
Remember those 15 people who refused to repay their federal student loans? Their “debt strike” has picked up 85 more disgruntled borrowers willing to jeopardize their financial future to pressure the government into forgiving their student loans.
And the government is starting to listen. The Consumer Financial Protection Bureau has invited the group to Washington on Tuesday to discuss their demand for debt cancellation. Although the CFPB doesn’t have the power to grant that request, the agency’s overture shows that the strike is being taken seriously.
It’s been a month since 15 former students of the failing for-profit giant Corinthian Colleges said they would not pay a dime of their student loans because the school broke the law.
Corinthian, which runs Everest Institute, Wyotech and Heald College, has become the poster child for the worst practices in the for-profit education sector, including high loan defaults and dubious programs. Clouded by allegations of deceptive marketing and lying to the government about its graduation rates, Corinthian lost its access to federal funds last year, forcing the company to sell or close its schools.
In the aftermath, current and former students of the for-profit schools have called on the Education Department to wipe away debt they say Corinthian pressured them into taking. After months of pleading with the department to forgive the federal loans, the students teamed with an offshoot of the Occupy Wall Street movement known as the Debt Collective. Together, they came up with the idea for the strike.
It’s a dicey move because students who default can lose their paychecks, tax refunds or even a portion of their Social Security. Not paying back debt can also ruin someone’s credit, making it difficult to buy a house or car, or to get a job.
But organizers say most of the strikers are already in default. Anyone willing to join the movement must attend a financial literacy workshop on the consequences of not repaying their debt, according to the organizers.
An attorney working with the Collective is helping the strikers file what’s known as a defense to repayment claim, an appeal to the Education Department to discharge the federal loans on the grounds that the for-profit school broke the law. Organizers posted the claim form on their Web site last week and had received 220 applications from Corinthian students as of Friday, according to Luke Herrine, a Debt Collective organizer.
The department has broad authority to cancel federal student loans when colleges violate students’ rights and state law. There is even a clause in federal student loan agreements that says: “In some cases, you may assert, as a defense against collection of your loan, that the school did something wrong or failed to do something that it should have done.”
Strikers have asked to meet with Education Secretary Arne Duncan during their trip to Washington. Education Department spokeswoman Denise Horn said a senior official from the department plans to attend the CFPB meeting.
It’s ultimately up to the department to take action on the defense claim, but Herrine said the meeting with the CFPB is a critical step forward.
“If the Department of Education isn’t there yet, our meeting with the CFPB has helped at least get them to the table,” he said. “It’s in the department’s interest to discuss this. I don’t think they want more than 100 students refusing to pay their loans publicly. I don’t think that’s a good thing for them.”
The Education Department and the CFPB have worked with ECMC, the student debt collector which recently bought more than half of Corinthian’s campuses, to forgive many of the private loans in Corinthian’s Genesis program.
Students will see an immediate 40 percent reduction in the principal balances on their loans, with the remainder forgiven over the next few years. But that’s just the private loans. Students who took out federal loans are still on the hook. Officials at the Education Department have said they are still working on options for borrowers.
It’s a tough call for the government. State attorneys general and the CFPB lawsuits against Corinthian present strong evidence of years of misconduct that could strengthen the students’ cases. But granting the discharges could mean the loss of billions of dollars in taxpayer money and set a precedent for future requests for loan forgiveness.