'Corinthian 15' Student Debt Strike Picks Up Congressional Endorsement

03/03/2015 10:03 pm ET | Updated Mar 03, 2015
Bill Clark via Getty Images

Former for-profit college students who publicly announced a "debt strike" have gained a prominent endorsement from an influential member of Congress.

Rep. Maxine Waters (D-Calif.) said Tuesday she supports the 15 former students who declared last week they won't make payments on their federal student loans. Waters, the top Democrat on the House Financial Services Committee, is the first member of Congress to publicly endorse the actions of the striking debtors, who refuse to repay loans taken out to attend schools owned by Corinthian Colleges Inc., the troubled owner of schools that the U.S. Department of Education recently bailed out.

The so-called Corinthian 15 claim Corinthian's schools lured them into enrolling and taking out loans by advertising false job placement rates. The borrowers are relying in part on the master promissory note, which acts as a contract between student borrowers and the federal government, that they signed when they took out the loans. The note contains a provision that may cancel borrowers' debts if they can show that misrepresentation led them to take out the loans.

Lawsuits by the federal Consumer Financial Protection Bureau and state attorneys general in California, Massachusetts, and Wisconsin may help their cause. In separate suits filed in recent years, authorities allege that Corinthian fraudulently induced students to take out loans to attend its schools by misleading them about future job prospects. The company has denied the accusations.

The striking debtors have been in touch with federal officials, but have yet to receive public support. The Education Department, in a statement last week, encouraged them to make good on their debts. Waters is likely the first federal official from any government branch to endorse their strike.

The former Corinthian students "have decided that this is predatory lending and they're not going to repay their debts," Waters said. "They're organizing, and I support them."

The debt strike has brought renewed attention to the Education Department's lackluster efforts at protecting the integrity of the federal student loan system, and its inattention to the plight of borrowers in distress. The Education Department allows schools to generate tens of billions of dollars in annual revenues through taxpayer-backed loans and grants to students. In return, the department is supposed to ensure, for example, that schools aren't misleading students about their graduation or job placement rates.

But in the case of Corinthian, which is slowly dismantling itself as a result of numerous federal and state investigations into alleged wrongdoing, student advocates claim the Education Department effectively turned a blind eye to mounting evidence that students were being misled into taking out federal student loans.

For example, in a January 2014 letter to Corinthian, Robin Minor, the Education Department's chief compliance officer, said the company had “admitted to falsifying placement rates” at many of its campuses, which along with other concerns, “suggest systemic deficiencies” throughout the company's several dozen campuses. Education Secretary Arne Duncan has repeated those claims in letters to federal lawmakers.

The Education Department has since helped keep the company afloat while it finds buyers for its various schools, which operate under the Everest, Heald and Wyotech brands. Meanwhile, former students are left to fend for themselves.

A group of Senate Democrats has called on the department to forgive debts owed by current and former Corinthian students. The Education Department has yet to respond to their demand.

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