Photo by Connor Dwyer via Stocksy

'We Were All Lied To': The Students Forced to Pay Fraudulent Loans

The Department of Education has promised relief to Corinthian College students who were tricked into taking out loans for a fake institution of higher learning—but some of these fraud victims are now being faced with the threat of garnished wages.

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Oct 28 2016, 8:15pm

Photo by Connor Dwyer via Stocksy

Ann Bowers enrolled at an Everest College campus in 2011 after an accident left her unable to work. Over the phone, she recalled how the school—a subsidiary of the now defunct Corinthian College, which had chains across the country—courted her. "Everest told me that they had a special program for disabled students to get into an occupation," she said. "That never came to light. It was all lies."

Before she discovered that Everest was a fraudulent organization, however, she had already been duped into taking out $53,000 worth of federal student loans. She said that Everest rushed her through the process of signing up for the loans and that she had "no clue" what was happening—she says she trusted the school.

Read more: Death Is Not a Good Enough Excuse to Stop Paying Student Loans, Report Finds

Her trust, unfortunately, was misplaced. As early as 2007, state attorneys generals sued the network of schools and for its deceptive advertising. In 2014, the Department of Education launched an investigation into Corinthian colleges and found a pattern of misleading students and coercing them into taking out federal student loans to pay for an education that would get them nowhere: Students who wanted to transfer often came up against the fact that no other institution would take their credits and the Department uncovered that Corinthian dubiously inflated their job placement rates. By 2015, all the campuses were either liquidated or shut down down, and the Department promised to provide swift debt discharges to the Corinthian victims.

But, for students with mountains of student loan debt that they were misled into accruing, finding relief has been an excruciatingly slow process. Last month, Sen. Elizabeth Warren sent an incendiary letter to the Secretary of Education, John King, detailing the findings of an investigation she'd launched into the Department's debt relief program. According to Warren, the Department of Education is still collecting on on the fraudulent debts instead of unburdening students of them.

"For over a year now, while the Department's student loan bank has talked extensively about helping former Corinthian students and has encouraged many of them to apply for loan discharges, only a tiny fraction of former Corinthian students—around 4,000—have actually received relief under the 'borrower defense' discharge program," she wrote. "Meanwhile, according to alarming new data that the Department provided to my staff, nearly 80,000 former Corinthian students are currently in some form of debt collection as the direct result of actions by the Department's student loan bank."

It was all lies.

In response, the Department of Education has finally released a report in which it announced a plan to expedite grant debt relief to the thousands of former Corinthian College students. "Since taking office, the Obama Administration has worked tirelessly to protect students and taxpayers and crack down on dodgy schools," Secretary of Education John King said in a press release. "Today's regulations build on that progress by ensuring that students who are lied to and mistreated by their school get the relief they are owed, and that schools that harm students are held responsible for their behavior."

For some, the report brings some welcome news. It reveals that the department has granted relief to 11,000 students who had filed claims to discharge their loans, in addition to the 4,000 students that Warren enumerated. It also details a plan to grant blanket relief to students who attended Corinthian—a network of schools that includes campuses under the names Everest College, Everest Institute, Heald College, and Wyotech—up to 180 days before the business was forced to closed.

This is great for people like Bowers, now 54, who left Everest in 2014 and has been waiting for the nerve-wrecking shadow of her debt to be over. (Her loans are currently in forbearance.) When I talked to her over the phone, she was worried that she would potentially have her disability checks garnished. Hopefully, she will be relieved of the burden of her debt as soon as possible, as promised.

But critics say that the Department of Education's response is still lacking. A significant number of student victims who have to file individual claims under the aforementioned borrower defense program—which allows any borrower to dispute their federal student loan with proof of a college's misconduct—are still in limbo and left to languish in bureaucracy.

The Debt Collective, an organization of people who are boycotting their loans because of widespread predatory student lending, says that the Department just hasn't gone far enough to protect those who do not qualify for the Automatic Closed School Discharge. "When the Department finds systematic wrongdoing, it has the power to cancel debt automatically on a group-wide basis. It has found systematic wrongdoing at Corinthian. Yet it still insists on individual applications from borrowers subjected to this wrongdoing," they wrote in a statement released today in response. "Why?"

Indeed, people who attended a Corinthian College in the years before it closed—taking out students loans because they were promised jobs that didn't exist or because they were unknowingly signed up for loans by administrators—are still liable for their debts. The process to get in the clear has so far taken years and has pushed borrowers into collection, leaving them to face wage garnishment threats. To be clear, these students are getting collection letters from the very same agency that is supposed to be helping them.

Former students like Sarah Diffenbacher are frustrated, and they don't anticipate any relief in the near future. The 38-year-old attended Everest College in Ontario, California from 2007 to 2012. She's currently employed the medical field as a phlebotomist, no thanks, she says, to her training from Corinthian. Two years ago, Diffenbacher applied for a discharge from her loans with help from the Debt Collective under a borrower defense claim. She says Everest lied about her degree program and took out loans in her name without her consent.

In 2007, she enrolled in Everest's paralegal studies program and completed an associates degree in two years. The school had previously told her that she would be able to transfer her credits "anywhere." She was all set to transfer to a nearby law school when she learned that her certificate from Everest had no real value. "Everest told me that I would be able to go to Laverne Law School and further my degree. But when I went over to Laverne after I graduated, they basically laughed at me," she told me over the phone. "[The law school] told me that they couldn't take any of my credits. They said they didn't accept any of it. I tried to find other schools that would take my credits from Everest but no school would take it."

Confused, she went back to Everest and they convinced her that a bachelors degree in criminal justice would really get her where she wanted to go. "[Everest] told me that, because of the way the economy has gone, an associates degree is nothing anymore, and if I got my BA I could go further with that. It made sense at the time. They were very good salesmen, I will give them that," Diffenbacher said flatly. "I felt stuck."

She says the slick talking just continued: Toward the end of her first year in the BA program, Everest told Diffenbacher that she needed to take more classes than they had previously told her. "I just couldn't take it anymore," she said. "I was raising kids... I didn't even graduate with a bachelors degree." She also claims that Everest lied about the cost of the program. "I was told that with my grants—I qualified for a Pell Grant and the Cal Grant—and my credits from my associates degree, my BA would only cost $400. I made a $400 payment, and now they're sending me a collections letter that says I still owe them $1000."

She also owes over $100,000 and counting in federal student loans, which she says she accumulated because Everest tricked her. "During finals week, financial aid called me down and asked me to sign into my student portal. They told me they just wanted to make sure my account was good to go for the next term," she explained, adding that the administrators told her to keep her account open and go back to class. "I had no idea that they were taking out loans through my account. Everything they said was a lie."

It has just become so stressful. I don't even open up the letters anymore.

Now the time clock on the 12 months of forbearance she was granted after filing for relief has run out, and she says she hasn't heard anything back from the Department of Education—except in the form of collection letters. "About a year ago, the collection letters really started pilling up. I got a letter saying they're going after my [tax returns], and a few days ago I got another letter saying that they're going to start garnishing my wages," she said. "It has just become so stressful. I don't even open up the letters anymore. I just throw them to the side. What else am I going to do?"

Another way the Department falls short in helping people like Diffenbacher is that she can no longer qualify for a Pell Grant, which has a lifetime eligibility maximum of 12 semesters. In the report sent out today, it appears that only students who qualify for the Closed School Discharge are eligible to have their grants restored. "If I want to further my career in the medical field, I can't. I'm so maxed out on my loans and other resources that I just can't," she said. "There are no resources for me to go any further. I can't even find [resources] for my son to go to college."

Diffenbacher recently filed a lawsuit against the Department to end the garnishment of her wages and has no plans to give up on fighting to get her debt discharged. "The Department of Education has done nothing to get rid of this fraudulent debt," she said. "They did it for a few people, and I think they thought that would shut everybody up. That we would be satisfied with that. But they need to get rid of it for every victim. We were all lied to."

Collectively, the Corinthian debtors have harsher words, specifically for King. "Our movement is growing. We will work with our fellow for-profit college students across the country to continue to make public the disgraceful behavior of you and your agency," they wrote in a letter. "We will do everything we can to let the world know that you are a liar who cares more about saving face with lobbyists than doing justice to victims. We invite you to prove us wrong."