The federal government will erase much of the debt of students who attended the now-defunct Corinthian Colleges, officials announced Monday, as part of a new plan that could cost taxpayers as much as $3.6 billion.
Corinthian Colleges was one of the largest for-profit schools when it nearly collapsed last year and became a symbol of fraud in the world of higher education and student loans. According to investigators, Corinthian schools charged exorbitant fees, lied about job prospects for its graduates and, in some cases, encouraged students to lie about their circumstances to get more federal aid.
In a plan orchestrated by the Department of Education, some of the Corinthian schools closed while others were sold before the chain went bankrupt this spring. The biggest question has been what should happen to the debt incurred by students whose schools were sold. The law already provides for debt relief for students of schools that close.
"We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable," Education Secretary Arne Duncan said in a statement.
The Education Department said it would streamline the process for the students whose schools were sold but who still believe they were victims of fraud.
For example, the department has already found that many programs at a California subsidiary of Corinthian Colleges, known as Heald College, were "misrepresented" to students. So any student enrolled in the school between 2010 and 2015 would likely qualify for relief.
The amount of debt relief could be staggering. Officials estimate that at the Heald College alone about 40,000 borrowers took on $542 million in loans. That number, however, climbs to $3.6 billion in loans if looking across all Corinthian schools, according to the Education Department.
Duncan told reporters in a phone call on Monday that the department has no way of knowing how many students will come forward and ask for help.
"It's an unknown quantity at this point," he said of the final price tag.
Former officials at Corinthian Colleges weren't immediately available for comment. A former lawyer for the school said he no longer represents the chain of colleges since it went bankrupt.
Most of the company's assets have been sold and its stock worthless.
Rep. Elijah Cummings, D-Md., praised the move by the administration, even as it left glaring questions about whether the government could have done more to protect students in the first place.
"It is our responsibility to hold servicers and colleges accountable to prevent future students from having to endure anything like this debacle ever again," Cummings said.