These Debt Strikers Are Refusing to Pay Their Student Loans
Pissed-off former students are launching an attack on the institution of for-profit education in America.
The Department of Education in Washington, DC. Photo via Flickr user nostri-imago
Last month, 15 graduates of Corinthian Colleges announced they would no longer pay their student loans. Since then, the debt strikers' ranks have grown to 100, and today they're meeting with the feds in Washington.
The students say they were persuaded to take on the loans based on promises of career placement and expected salary earnings that Corinthian, a troubled chain of for-profit career colleges, simply failed to deliver. But they're not just challenging one assortment of what they allege to be shady schools—these students are launching an attack on the institution of for-profit college education in America, and the debt that comes with it.
Debt Collective, the Occupy Wall Street offshoot that organized the strike, will present the Department of Education (DoE) with "Defense to Repayment" claims from not only the 100 or so official strikers, but also hundreds of other Corinthian students unwilling to strike who nonetheless believe that their debt is illegitimate. Debt Collective has collected these claims from Corinthian students via its Defense to Repayment App, which launched last week.
This is the first time DoE has acknowledged the Corinthian debt strike, which is pretty important since the agency is the one that decides how to treat the loans. While the former students have committed to nonpayment, they're trying to play by the DoE's rules for now, or at least get clarification on what those rules actually mean. According to the regulations that govern the federal student loan program, a loan borrower "may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law."
Debt Collective is asking DoE to enforce this clause by canceling all federal debt incurred by its students.
"Basically, the DoE regs say that if a school violated state laws in getting the student to take out the loan, the student can assert Defense to Repayment (DTR)," says Luke Herrine, Debt Collective's legal coordinator. "It's a way to make federal student loan law on par with private loan law—you can always assert as a defense to paying a loan that it was given to you under illegal circumstances."
While the statute exists, it's currently unknown how often the DoE has enforced it, if it has at all.
"DoE is supposed to respond to a letter from senators that would throw some light on this, and [Debt Collective] has an outstanding FOIA [Freedom of Information Act request] with DoE asking for exactly this information," Herrine says. "But nobody outside DoE knows."
Former students aren't the only ones claiming that Corinthian, once among the nation's largest for-profit college chains, made false promises. The company is currently being sued by the Consumer Financial Protection Bureau (CFPB) and attorneys general in California, Massachusetts, and Wisconsin for allegedly deceptive marketing and enrollment tactics that misrepresented job placement rates and school programs to both students and state regulators. After Corinthian failed to provide information concerning those accusations last year, the DoE blocked its access to federal funds, and negotiated an agreement with the chain to begin selling off its campuses nationwide. In February, the DoE brokered a deal with ECMC, a student-loan servicer with no prior experience in college administration, to take over half of Corinthian's schools. The deal also offered some students currently enrolled at the schools a complete discharge of their loans, but no such option to former students (some of whose federal debt has been purchased by this same new owner), despite the fact that their degrees are pretty much worthless as professional credentials.
Democrats in Congress, state officials, and Debt Collective have all expressed skepticism that selling Corinthian's campuses is in the best interest of students. If the DoE had just shut down Corinthian instead (as the Ontario Ministry of Education did last month with several of its subsidiary Canadian schools), they would have been responsible for forgiving $1.2 billion in Corinthian federal loans under DoE's " closed school" rule.
By selling the company's physical and debt-based assets, the DoE can continue to collect payment on Corinthian student loans. This is what annoys the Corinthian strikers the most.
"DoE has become little more than a debt collector," says striker Ann Bowers. "Not only does the law tell them to erase our debts, it's the right thing to do. If they really thought their job was protecting students, they would have done it already."
According to Hannah Appel, economic anthropologist at UCLA and one of Debt Collective's organizers, "State law which determines what is fraudulent in each state, but the ultimate arbiter for every [federal student loan] is DoE, because they're both the creditor and the regulator, which, needless to say, is a conflict of interest."
Debt Collective activists argue that bundling these claims together and delivering them in tandem with the strikers' visit to DC will put pressure on officials. Appel tells me one of the strikers filed his own claim with DoE a year ago, but they never responded.
Of course, for the strikers, the legal consequences for eventual default on student loans can be steep and severe.
"They can garnish wages, they can intercept federal tax refunds, they can offset federal benefits including Social Security, and they can also tack on substantial penalties and collection costs," says Adam Minsky, a lawyer in the Boston area who specializes in student loan law. "Of course, there are credit report consequences as well. There's also no statute of limitations for how long the federal government can pursue a delinquent borrower." Regarding defense to repayment as a legal strategy, Minsky—who's never used it—says, "It would be a tough defense, an uphill battle, but that doesn't mean it's not worth trying."
Establishing defense to repayment as a way to cancel student loans delivered under bogus pretenses would be a big deal. DTR could be used against other trade schools under investigation for the same types of fraud alleged to have been committed by Corinthian, such as ITT Tech, which was also sued by CFPB last year. But when I asked Herrine whether traditional colleges and universities could be vulnerable to similar claims, he was skeptical.
"These schools might be decadent and decaying versions of their former selves, but they don't tend to violate any of the relevant laws that would trigger DTR," he says.
Even though this case might have limited applicability, Appel says the true accomplishment is in creating a "proof-of-concept" that demonstrates individuals can collectively organize around their debt and win.
"Collective financial disobedience, analogous to the labor movement, analogous to sitting down at a lunch counter where you're not allowed to sit down, is the important step here. To say, 'We refuse to go into debilitating debt for the basic things we need to survive'... Debtors need a collective seat at the table just like workers need a seat at the table; that to me is the major transition."
Corinthian spokesman Joe Hixson tells me that they were simply trying to fill a gap in the US education system left by community colleges. He adds that many students "chose Corinthian schools after finding that community colleges did not serve their needs, either because of a lack of hands-on training, waiting lists for desired programs or classes, large class sizes, or a lack of adequate support from faculty and staff." The company's responses to the lawsuits variously allege that regulators cherry-picked evidence, judged its job placement rates against arbitrary criteria, and failed to recognize that Corinthian schools produced more graduates and employed more career counselors than community college systems.
But when I ask Appel why just 100 Corinthian alumni have committed to the strike out of hundreds they say have contacted them, she's ready with an answer.
"The reason so few people have signed on as strikers is because how deeply the financial system has its claws into us—people are terrified about their credit scores; people are terrified that their wages might be garnished; people are terrified because they have no legal rights as student debtors," she says. "Out of [hundreds of] Corinthian debtors who contacted us, we [recruited] one in eight, because seven in eight people are so deeply scared of the financial consequences of the debt system and the way people's rights have been removed from them when the federal government is acting as a debt collector. When we have a frank conversation with them about what the consequences will be, even though we will provide them with legal protection and strength in numbers, they say no way. But we don't reject them; we're now inviting them to file DTR claims through Debt Collective."
So what happens if the feds don't recognize these claims?
"If DoE really did nothing... we might ultimately work with some lawyers to bring suit. But before then you can be sure more strikers would sign up, more students would apply, more legislators would speak up, and other sorts of non-legal pressure would come to bear," says Herrine. The "ball will be in DoE's court for a while until then."
Given the choice between defaulting on one's loans and filing a defense to repayment claim, the latter seems about as risky as joining a consumer class-action lawsuit after you've received a flier in the mail. But in this case, instead of getting cut a check for a few bucks, Corinthian students might get the entirety of their loan payments back.
Since they're already on the hook for paying off the loans, many of the students figure they have nothing left to lose.
Bill Kilby is a freelance writer based in Los Angeles.