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Strike Debt erases $13M of student debt, while former students launch debt strike

(Debt Collective)

(Debt Collective)

Strike Debt today announced that it has absolved 9,438 people of debt, totaling $13,384,642.14, from the scandal-racked Corinthian Colleges Inc. — once one of the country’s largest for-profit education providers. The group took a similar action in September, clearing nearly $4 million of privately held debt from Everest Colleges, part of the Corinthian system. This time around, however, Strike Debt has revealed a new tactic with its beefier relief package: the debt strike.

Fifteen former students of Corinthian, known as the “Corinthian 15,” are now refusing to pay down their loans until their debt is absolved by the Department of Education, or DoE. In striking, they intend to put pressure on the federal government to both hold for-profit education providers accountable and make higher education more widely accessible. Despite its name, Strike Debt has never orchestrated a coordinated debtors’ strike. The group is encouraging other debtors from for-profit, private and public colleges to join them. Strike Debt will be providing ongoing legal support to inform strikers on the consequences of striking and prepare them for potential legal and financial ramifications.

Like for-profit universities more generally, this initial group of strikers are geographically and generationally diverse, coming from locations as far ranging as Michigan, Texas, Arizona and California.

Ann Bowers, 54, is a striker from Fort Meyers, Fla. As a mother, Bowers was attracted to the option of taking online classes, and enrolled in Everest to pursue a bachelor’s in marketing. After receiving her associate’s degree, though, Bower’s academic adviser disappeared. Shortly thereafter, her funding from the federal government dried up.

“Something that started off to be such a good thing,” Bowers said of her time at Everest, “turned out to be disastrous, and not just for myself, but for many, many others.”

Bowers explained that many of the now-strikers met on a Facebook group called the Everest College Avengers. Bringing together Everest students from across the United States and Canada, the group functions as equal parts organizing and support space; members share stories about their experiences with Everest, and swap advice on the intricacies of repayment.

“We were all in a dilemma because we didn’t know what was going on,” Bowers said. “We were hearing stories from everywhere.”

Unable to transfer her credits, Bowers found herself saddled with $50,000 in federal debts alone. Many Everest students were also encouraged to take out private loans, which are often harder to lose. Through the group, Bowers found that her situation was hardly unique.

After talking for months, the Everest Avengers were contacted by Strike Debt in New York. Laura Hanna, an organizer with Strike Debt, attended an Avengers meeting out in California. “Students were frustrated, angry and wanting to organize before we met them,” she recalled. “So it was a good meeting.”

Together, Strike Debt and the loose national network of Everest students started planning for what would eventually become today’s announcement.

The strike — the first of its kind — is also the first act of the Debt Collective, formed in September as a “pilot debtor’s union,” according to a press release from the group. The collective itself grew out of the Rolling Jubilee, which — since its 2012 founding out of Occupy Wall Street — has relieved over $30 million in student and medical debt through modest fundraising efforts.“Modest,” this time, is putting it mildly: Today’s $13 million debt buy-out, according to Hanna, was “retired” to Strike Debt for just $1 from a private loan collection firm eager to end their involvement with for-profit education.

“We see it as ironic that the Department of Education is going to continue to collect on these loans when there’s such a clear moral argument from the general public,” she said.

Given the month that Corinthian has had — not to mention student debt in general — there are compelling pragmatic reasons to leave the sector as well. Earlier this year, the DoE threatened to remove funding — accounting for a whopping 90 percent of Corinthian’s budget — from the dysfunctional school system, and urged it to begin rapidly consolidating its programs, or, in other words, close up shop. In Canada last week, Everest College filed for bankruptcy, and was ordered to abruptly close its 14 locations in the country, as reported by CBC News. The company was also delisted from the NASDAQ 5000 earlier in the month for failing to provide up-to-date accounting information to financial regulators.

Nationally, the statistics on student debt are sobering. A report on households released last week by the New York Federal Reserve found that student loan debt has ballooned in the last decade, swelling by $77 billion in the last year alone to nearly $1.2 trillion, second only by balance to mortgage debt. Perhaps more alarmingly, the number of students taking out loans to pay for higher education has risen by 92 percent in the last decade. In the same time period, the average balance per borrower has grown from $15,000 to $27,000. Moreover, student loans carry the highest rate of delinquency at 11.3 percent; the next highest is credit card debt at 7.5 percent. The report also highlighted that mounting student loan burdens are keeping many from buying homes and cars, and even starting families.

“I really don’t see the fairness in this,” Bowers said. “Only the wealthy are entitled to an education and people who can’t afford to pay for it out-of-pocket have to go into this world of debt.”

At the beginning of February, the Department of Education and ECMC, a government debt collection contractor, negotiated a deal by which it would acquire over half of Corinthian’s campuses along with its students’ debt. Attempting to avoid a mass closure of the system’s 100 schools, the DoE agreed to the sale on the conditions that the group forgive $480 million in students’ debt, reducing principal loan amounts by 40 percent over “an unspecified amount of years.” The campuses will be managed by Zenith Education Group, a newly founded ECMC subsidiary.

In a press statement regarding the agreement, Under Secretary of Education Ted Mitchell said that his department was “confident students will be safeguarded by the strong and bold commitments Zenith has made.” Still, few details on the deal have been made public.

To meet DoE stipulations for its purchase of Corinthian, ECMC paid just $7.5 million to re-acquire $505 million of the private “Genesis” loans that Corinthian had sold off to third party collectors. Hanna pointed out that the debt being forgiven by Strike Debt is from Corinthian’s tuition account receivables, lines of credit extended directly from the company that exist outside of either federal or Genesis loans. While a 40 percent principal reduction will be good news to 170,000 Genesis borrowers, it does little for those facing federal and other private loans, including those held by loan giant Navient. The strikers and their supporters are calling for the DoE to forgive all federal and private loans students incurred as a result of Corinthian’s misconduct.

As of now, the agreement also holds that ECMC itself will not be held legally responsible for Corinthian’s wrongs, a fact especially relevant in light of a pending lawsuit — filed in September by the Consumer Financial Protection Bureau, or CFPB — which seeks over $570 million in damages from the company for its predatory lending practices. The suit alleges that Corinthian “inflated its job placement statistics to induce students to enroll and to maintain its accreditation,” among other “deceptive tactics.”

The CFPB has accused Corinthian of intentionally inflating its tuition costs to an amount greater than that covered by federal education loans so that it could collect more money from students. When federal loan packages came up short, the Genesis loans were there to fill in the gap — complete with higher interest rates and more stringent repayment requirements.

“All those people got rich off so many people’s dreams of a better life,” Bowers explained. “Instead of a better life, they delivered a lot of debt.”

Should the schools not bought by ECMC shutter, even a ruling against Corinthian could be effectively invalidated. Among other reasons, the sale has been criticized by everyone from advocacy groups to Congressional Democrats for stripping students’ right to file class action lawsuits against Corinthian. Many also fear that ECMC, traditionally a federal contracted loan collection agency, is dangerously ill equipped to turn the flailing Corinthian system around given its inexperience in higher education management. There are other reasons, however, to suspect that ECMC may not be the best fit for students.

Alan Pyke reported for ThinkProgress last year that ECMC has been instrumental in making student debt harder to escape. Founded in 1994, ECMC worked for nearly 20 years to make it nearly impossible for borrowers with student loans to declare bankruptcy, a common legal method of relief from other forms of debt. The firm won a federal appeals court case in 2009 to create a more narrow definition of “undue hardship,” which claimants have to prove in order to declare bankruptcy. That definition now excludes student loan burdens. The change makes it easier for collection agencies like ECMC to go after borrowers — a task it seems to relish. Pyke notes that ECMC lawyers once argued in court that a young cancer survivor faced with unexpected medical bills should have been ineligible to declare bankruptcy for her student loans on the grounds that “survival rates for younger patients tend to be higher.”

Hanna and Bowers hope that today’s announcement will inspire others to take similar actions. When asked what she would like to see come out of the debt strike, Bowers answered, “I want my loans and everyone else’s discharged.” But, in the long run, she added, “I think their whole education system — the funding and everything — needs to be revisited and re-evaluated.”

The Corinthian system might well be a canary in the coal mine, not only for for-profit colleges, but higher education’s debt problem writ large. Though the beleaguered company might be a particularly bad actor, the mounting crisis of student debt could soon have implications for the broader economy. The Department of Education has already begun to treat for-profit schools as “too big to fail,” and the CFPB’s accusations of predatory lending sound eerily similar to those made against big banks in the lead-up to the Lehman Brothers’ collapse in 2008.

In speaking of the Great Recession, Hanna wondered what effect similar organizing around mortgage repayment pre-2008 could have had on the course of the financial crisis. Her conclusion: “Maybe we would have had better [repayment] terms. Maybe people would have lost less.”

While changing higher education’s relationship to debt is no simple task, the Debt Collective seems poised to take it on.