Corinthian students ask court to freeze debts

An ad hoc committee of former Corinthian College students filed a motion Tuesday asking the court handling the school’s bankruptcy case to freeze all efforts to collect student loan debt.

The for-profit school, which once operated 107 campuses before closing its doors in April and filing for bankruptcy on May 4, was sued by the Consumer Financial Protection Bureau and at least 20 state attorneys general, including those of California and Illinois. They accuse the school of using false and misleading advertisements about job prospects to entice students to enroll at the school and take out costly loans to cover tuition. 

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Last month, the Justice Department’s U.S. Trustee Program granted the students’ request to form a special committee to represent their own interests in the bankruptcy case.

The committee is now seeking a court-ordered freeze on any effort to collect debts related to federal and private funding of Corinthian — funds that would have been provided for tuition, fees and other school-related expenses ­— while responsibility for the repayment is determined in the bankruptcy case.

“Until the full extent of Corinthian’s misconduct is known, and until the court decides who holds responsibility for repaying billions of dollars of advances that were funded on Corinthian’s misrepresentations, all collection efforts should be put on hold,” the students’ attorney, Scott Gautier of Robins Kaplan LLP, said in a news release. “This motion represents an effort to maintain the integrity of the Chapter 11 process by preserving the status quo between Corinthian, the government, student victims, and other creditors while they work together to resolve what might be a multi-billion dollar disaster.”

On Monday, the Department of Education extended the time frame for students to apply to have 100 percent of their federal loans forgiven. Students who attended any now-closed Corinthian schools anytime after June 20, 2014 can apply to have the debt erased or transfer their earned credit to another institution.

The Education Department is also giving students who believe they were victims of fraud the ability to apply for loan forgiveness. Those students will then have the option of having their federal loans immediately placed into forbearance, which stops their monthly payments to ensure they do not fall behind or default on their loans while the department works to resolve the claim. 

For students who are already in default on their loans, the department said it will immediately halt collection activity. Students will receive a notification from their loan servicer to confirm the change.

“Students who were defrauded by Corinthian Colleges were just handed two enhanced options to deal with their student loan debt,” Rep. Jackie Speier (D-Calif.) said in a statement. “These institutions should never have been allowed to prey on students and taxpayers, but at least we can prevent students from losing their futures to unforgivable debt.”

While the department’s actions are a step in the right direction, the student committee said, they do not obviate the need for full relief, which is why it has filed a motion requesting the court freeze all efforts to collect student loan debt.