AG Frosh Joins Multistate Effort to Provide Debt Relief for Students Harmed by For-Profit Schools

Salisbury, MD -- Attorney General Brian E. Frosh today joined 10 other state attorneys general in urging the U.S. Department of Education to cancel federal student loans when for-profit schools have broken state law, and to provide a clear process for students seeking critical debt relief.

The recommendations to the Education Department, contained in a letter sent today, are the latest step by Attorney General Frosh and several colleagues to address the troubling for-profit college problem highlighted by the bankruptcy filing this year of Corinthian Colleges, which had been under investigation for deceptive loan practices by federal and state officials.

"Predatory for-profit schools use sophisticated marketing techniques to lure students in, burden them with debt, and leave them with few marketable skills," Attorney General Frosh said. "We need to use all the tools at our disposal to make sure students - who are often minorities and veterans - are protected from these schemes." 

The letter, sent to U.S. Secretary of Education Arne Duncan and a Special Master recently appointed to review the debts of students who attended Corinthian schools and establish state law discharge procedures, asks that the state attorneys general be included in the planning process.

"The state Attorneys General are experts in the state trade practices laws that must be applied in considering state law based defenses to repayment, and many of our offices have investigated and developed evidence of unlawful acts perpetrated by schools against students in our states," the attorneys general wrote. 

The letter raises concerns about the Department of Education's state law discharge process and offered a series of recommendations, including:

• Easing the burden on students to achieve relief: Borrowers should have a clear process for applying for a discharge of their loans based on violations of state law. Students should simply have to state how the school deceptively induced them to enroll or how the school engaged in other unlawful acts. The Department should not demand additional materials from students, aside from asking when they enrolled and whether they incurred federal loans while attending their schools. 
  
• Allowing Attorneys General to make showings of state law violations: As part of the review process, the Department should invite interested Attorneys General to provide supporting materials regarding the school's unfair or deceptive practices. While many consumers have been victimized by for-profit schools, they are often in a poor position to prove that the schools committed unfair or deceptive practices. 
  
• Discharging loans of groups vs. individual students: Provide a mechanism by which the loans of entire cohorts of students may be discharged. The Department should accept findings or evidence from government entities on behalf of the students.
  
• Ensuring relief regardless of loan status: The Department should clearly state that discharges are available for Direct loans, the Federal Family Education Loan Program loans, the PLUS program loans, and loans that have been consolidated into new debt. The Department should also make clear that students may recover amounts already paid on Title IV loans.

In addition to improving the process for state law discharges, the attorneys general asked the Department to ensure immediate relief to Corinthian borrowers, and to address eligibility problems concerning the implementation of the closed school discharge program as it relates to Corinthian loans.

In April, nine attorneys general sent a letter to Secretary Duncan expressing the importance of defense to repayment for student borrowers at for-profit schools that have broken state law. On June 8, the Department announced its new debt relief process for Corinthian students, and later that month announced the appointment of former North Carolina Banking Commissioner Joseph Smith as Special Master.

In addition to Maryland, today's letter was signed by attorneys general from California, Connecticut, Illinois, Kentucky, Massachusetts, New Mexico, New York, Oregon, Pennsylvania, and Washington.