An Education Loan Bailout -- and the Backstory

On Monday, the Department of Education announced student loan debt forgiveness for students at the now-closed Corinthian College system in California. At the end of April, the Department of Education slapped the for-profit college group with $30 million in fines for allegedly misrepresenting post-graduation job prospects and/or placement rates to some 900 students in 12 schools since 2007. Read the letter here.

Never mind that in 2010 (a year for which I have numbers), 110,000 students were enrolled in 100 schools in their system. That means the total transgressions represent less than 1% of the entire school population. And yet, the DoE decided that 40,000 students in the shuttered college system were eligible for immediate loan forgiveness for Corinthian’s misdeeds; all the students need to do is fill out a form, and their loan will be covered. By taxpayers, to the tune of an estimated $500 million dollars.

But why? That’s where it gets interesting.

Enter Kamala Harris. She’s the current Attorney General in California and she’s running for retiring [mc_name name=’Sen. Barbara Boxer (D-CA)’ chamber=’senate’ mcid=’B000711′ ]’s seat. Harris worked in conjunction with the Department of Education specifically targeting the Corinthian College system. According to the Wall Street Journal, “Last summer the Education Department began to drive Corinthian out of business by choking off federal student aid for supposedly stonewalling exhaustive document requests. The Department claimed to be investigating whether Corinthian misrepresented job placement rates as California Attorney General Kamala Harris alleged in a lawsuit.”

Corinthian agreed to turn over their education centers to other non-profits, but Kamala Harris refused to release any buyer of potential future liability, meaning anyone purchasing would be under constant threat of a lawsuit. Last November, “the nonprofit Education Credit Management Corporation (ECMC) “agreed to buy more than 50 Corinthian campuses for $24 million plus $17.25 million in protection money to the feds for a release from liability. But ECMC passed up Corinthian’s 23 schools in California because Ms. Harris wouldn’t quit.” The alternative to having no buyer for these particular schools would ultimately be to shut them down.

It was in April 2015 that Corinthian was slapped with the $30 million fine, which effectively drove the final nail in the coffin of the remaining schools because no one in their right mind would shoulder the liability. As for the hefty penalty, “The Department assessed the maximum fine of $35,000 per regulatory violation, which its bureaucrats count as each student that was improperly counted.” By the end of the month, all the rest of the schools indeed closed, throwing out of employment and school, thousands of people.

For those affected, “to mitigate the political damage, DoE [deputized] financial aid counselors to help Corinthian’s student refugees. Yet most community colleges don’t offer Corinthian’s vocational programs and flexible schedules, and many for-profits don’t accept Corinthian’s credits. Ms. Harris and the feds have also made clear they intend to continue their persecution of for-profits, so students could enroll in another political target.” How generous of them.

What makes this whole affair particularly odious is that that “the federal government doesn’t specify how for-profits calculate their job placement rates. States and accrediting agencies have disparate and often vague rules, which notably don’t apply to nonprofit and public colleges.” Thus, Corinthian Colleges was really just a part of the larger assault on for-profit colleges by the Obama Administration, all tied to his new “Gainful Employment” rules. You can read the regulations released last October.

Part of this new regulation change deals with colleges and federal aid. “In particular, Obama intends to change the parameters of what’s known as the “90-10 Rule”—a federal law that bars these schools from receiving more than 90 percent of their revenues through federal student aid, including loans and grants.” The affect of these changes on the for-profit college system has been noted by Forbes. Though the regulations don’t actually take affect until July 1, 2015, it appears Corinthian was a ripe target. What’s more, the Department of Education found a ready and willing partner in Kamala Harris, who just happens to be running for a very important Senate seat in California.

On can debate the merits of the for-profit college system, but that would be fodder for another post. The fact remains that certainly, the generous student loan forgiveness/bailout will resonate with these 40,000 young, impressionable voters who suddenly got their college costs covered by someone else, even if they weren’t an actual victim of alleged “misrepresentation”. Will there soon be another for-profit college chain shut down and subsequent loan bailout by the Feds in another important election state?