Student loan borrowers get debt with the hopes that they will find a better job once they graduate. However, due to for-profit schools’ misleading activities, many students found out that their degree is worth nothing. Even worse, they were misled about the true education costs, and now they cannot accumulate more debt to continue studying. Unfortunately, such cases are not rare. Many organizations were sued with similar allegations. Career Education Corporation is only for those organizations. The Career Education Corp lawsuit brought similar claims that the organization lied about job replacement rates, student debt and earning amounts, accreditation, and credit transferability.
Although the settlements resulting from lawsuits bring justice to students, not all borrowers can access these benefits. The settlement covers loans owed directly to the organization. Hence, federal and private loan borrowers are left out.
This guide will explain what happened in Career Education Corp lawsuits. Besides, we will present debt reduction and elimination strategies for federal and private loan borrowers.
Career Education Corp Lawsuit of 2019
At the beginning of 2019, the news was announced that the Career Education Corporation forgives student debt which benefited around 180000 students. This Career Education Corporation settlement was the result of investigations that lasted five years since 2014. The court ruled that the corporation will not collect $494 million student debt owed to this organization across 49 states because of its claimed deceptive recruitment strategies.
The Attorney Generals of Iowa and Illinois mentioned that the settlement provided relief to students from their debts and made the corporations treat students with respect and honesty.
Why did Lawsuit Start?
Several issues were the basis of the Career Education Corp lawsuit. The attorney general of Iowa mentioned that the organization lied about the true costs of programs and graduates’ job replacement rates. Hence, through these deceptive techniques, they could attract students. It should be mentioned that at its peak, the organization had enrolled 100000 students across 100 campuses.
Besides, the organization was accused of charging students to programs that did not even have proper accreditation. Such un-accredited programs could not help students get a qualifying license, and hence, they could lose job opportunities. In other words, students paid money for programs worth nothing.
Allegedly, besides lying about tuition costs, the recruiters also used emotional language to exploit student’s pains in their lives and to push them to enroll in a program.
The Response of CEC
Sure, the corporation neither accepted nor denied any wrongdoing. Its chief executive noted that the Career Education Corporation settlement was a significant event because the investigation involved a lot of lost profits.
The downsize in the organization’s operations was due to increased scrutiny of federal and state agencies. Besides, the corporation assured that they are committed to delivering high-quality education to match employers in need of skillful employees with students who want to advance their careers.
The Settlement Benefit
As mentioned, the Career Education Corporation settlement involved forgiveness for $494 million worth of debt. As it was accessible to more than 180000 students, the average benefit was around $2,744 per borrower. The organization was responsible for writing off those student loans and stopped any collection process.
It was claimed that the corporation tried to get some portion of the $494 million debt, and after the settlement, it was time to stop those efforts. Additionally, the Career Education Corporation lawsuit demanded the organization contact credit rating agencies and got all credit records related to those student loans from the beneficiary borrowers’ reports.
Next, there were some requirements for providing a “risk-free” period to students and teaching them necessary skills like finance and tech-literacy. Lastly, the organization was obliged to provide clear information to students. Hence, the organization had to send a one-page disclosure to students, which involved the true costs of education, average student loan debt, and borrowers’ earnings after graduation. In this way, the students could make the right decisions for their future education institution.
Whom the Benefit Applied?
It should be mentioned that the settlement only applied to borrowers who owed debt directly to the Career Education Corporation. Hence, many federal loan borrowers could not benefit from this settlement as such loans are distributed and controlled by the U.S Department of Education. Moreover, many private student loan borrowers are kept out of the settlement benefit because they did not receive the loan from Career Education Corporation but a different private lender.
Settlement of 2010 for $10.25 Million
The lawsuit that started in 2014 and ended in 2019 was not the only case against Career Education Corporation. In 2009, the New York Attorney General started an investigation against the corporation for similar reasons. At that time, the corporation enrolled around 75000 students across its campuses.
This Career Education Corp lawsuit claimed that the organization failed to deliver correct information about job replacement rates. Specifically, they inflated the job replacement rates for two years till 2011 to attract students. As students believed that they had a higher chance of finding a job after graduation, they chose to study in Career Education Corps schools. In turn, the accreditors who should have checked the organization’s operations failed to do their duties.
Besides misleading job replacement rates, the organization allegedly misinformed students about some programs which lacked accreditation. As a result, students enrolled in such programs could not be qualified for the exams after graduation and lost their employment chances. The lawsuit also claimed that the organization failed to inform students that some of their earned credits could be non-transferable.
As it is noticeable, this lawsuit and the following one, which we described above, shared many similar grounds. As a result of claims, the corporation fired some employees who allegedly were responsible for the misleading actions.
Besides, this Career Education Corp lawsuit resulted in $9.25 million compensation to students and a million-dollar penalty. Sure, this amount was much lower than the subsequent settlement. Moreover, the corporation was required to provide correct information about job replacement rates and get an independent audit company to verify it.
What Should Federal Loan Borrowers Do?
As mentioned, federal borrowers cannot enjoy the benefits of Career Education Corporation settlement. However, the government provides several financial assistance programs to help student loan borrowers. This section will inform such borrowers about their options.
Borrower’s Defense to Repayment
When there exists a lawsuit against a school, the first program that comes to mind is Borrower’s Defense to Repayment. This program helps students who for-profit schools are misled. The program was created to restrict fraudulent activities of such schools and protect student rights. Hence, if a lawsuit claims that the organization was engaged in misleading activities, there is a high chance of proving a case for Borrower’s Defense rule.
At the time of settlement, it was mentioned that around 2000 students of Career Education Corporation’s schools applied for Borrower’s Defense rule. However, at that time, there was no exact information about how likely it is to receive forgiveness through this program. Yet, the U.S Department of Education spokesperson said that the borrowers could use facts from the Career Education Corp lawsuit to support their claims in their applications.
Education Departments Attitude toward Borrower’s Rule
Unfortunately, Borrower’s Defense rule has long been attractive for students. Although it delivers justice to students, the former Education Department Secretary DeVos was against this program. She mentioned that Borrower’s Defense rule prepared during the Obama Administration was unfair to taxpayers and mentioned that this program was “free money.”
Besides, the Education Department delayed the review process of cases when students kept filing for Borrower’s Defense rule. Even when the court ruled that the review process should be resumed, many borrowers got rejections.
What is Expected for Borrower’s Defense to Repayment?
Luckily, when President Joe Biden announced his plan for “Education beyond High School,” he noted that he is going to revive the Borrower’s Defense rule and bring it to its glory days as it was during the Obama Administration. Therefore, we can expect that more students who the for-profit schools misled will get justice and eliminate their student debt accrued for a useless program.
The first news was announced in the first months of Biden’s presidency. The Education Department announced that they are changing the loan discharge calculation process. Currently, the calculation process involves benefits in tiers, ranging between 25-100%.
However, the new rule will eliminate such tiers, and more borrowers will qualify for 100% discharge if their application is successful. The details of the new discharge calculation method are yet to be announced at this writing time. However, it is expected that around 72000 students will benefit from the decision, and in total, one billion dollars will be granted to students as forgiveness.
Now that you know about the importance of Borrower’s Defense rule let’s get familiar with its eligibility requirements. As mentioned, the Career Education Corp lawsuit did not cover federal borrowers. However, the Borrower’s Defense to Repayment is specifically designed for such debtors. If you have Direct Loans, you can discharge your debt through this forgiveness program. Borrowers with private debt or FFEL and Perkins loans cannot qualify for this benefit.
The main condition to get eligible for a discharge is proving that the school misled you. In other words, you need to ensure that if the school did not engage in misleading activities, you would not have chosen that educational institution. Therefore, in your application, you need to clearly explain what happened and why you think your case is applicable to this discharge opportunity.
Keep in mind that you cannot qualify for this program for non-education-related issues, such as harassment. Only if the school lied about education costs, student loans, job replacement rates, accreditation, or quality of education can you apply to this program.
Borrowers need to submit any document that proves the fraudulent activities of schools to support their arguments. For example, you can submit the communication with the recruiters, the contract, the transcript, or a brochure with fake claims on it.
What are Other Programs Available to Federal Borrowers?
Besides Borrower’s Rule, there exist some other forgiveness, discharge, and repayment options for borrowers. If you have federal loans, your chance to eliminate or reduce debt is higher than private loan borrowers.
1. Forgiveness Programs
Several forgiveness programs exist for federal loan borrowers. One of the most popular options is Public Service Loan Forgiveness. This program eliminates the whole remaining debt once the debtor makes 120 qualifying payments.
Therefore, it takes a minimum of 10 years to achieve forgiveness. During progressing toward 120 payments, the borrowers need to work in qualifying positions at least 30 hours a week. Besides, they need to make on-time, full amount payments under Income-driven Repayment plans.
Another forgiveness opportunity is Teacher Loan Forgiveness. This program grants either $5,000 or $17,500 to eligible teachers. In return, the borrowers need to work for five years in a low-income school.
Perkins Loan Cancellation can also be an option if you work as a teacher. This program brings up to 100% cancellation in return for five-year service. The discharge is applied in installments. Besides teachers, firefighters, military members, nurses, public defenders, or volunteers with Perkins loans can apply to this program. You can check more information on the official Perkins Loan Cancellation page.
2. Discharge Programs
Forgiveness programs are usually granted in return for a service commitment. However, discharge programs eliminate debt in special cases. For example, if your school is closed, which is a similar case to the Career Education Corp lawsuit’s consequences, you can apply to the Closed School Discharge option. Besides, discharge due to bankruptcy, death, total and permanent disability, etc., exist.
3. Repayment Plans
If eliminating debt is not accessible, you can reduce the debt obligations and ensure effective repayment. The government provides multiple repayment plans to help borrowers choose a suitable plan to pay out the debt. Standard, Extended, Graduated, Alternative, or Income-Driven Repayment plans exist.
Each plan has a different rate, eligibility conditions, and payback period. Hence, you need to get familiar with each of them before utilizing a different repayment plan for your loans.
For example, if your income is low, an Income-based Repayment option can be beneficial. Such a plan is based on the income level, which means your monthly payments will also be lower. In extreme cases, the borrowers can qualify for $0 monthly payments.
Student Loan Consolidation simplified the debt repayment process. Some borrowers have multiple federal loans from different loan servicers. It can be exhausting to deal with many requirements. Hence, consolidation combines all existing loans into one.
As a result, the borrower gets a single loan. Keep in mind that consolidation does not allow for savings in most cases. Usually, the weighted average of existing loans is calculated as the rate for the new loan.
I have a Private Loan. What Should I Do?
Unfortunately, neither Career Education Corp lawsuit benefits nor federal programs presented above are accessible to private student loan borrowers. When you take a private loan, you need to consider that there will not be many options to get debt cancellation or reduction.
1. Student Loan Refinancing
If you have a private loan, one of the best options is to refinance the debt. Student Loan Refinancing involves getting a new loan and using the funds for existing loans. In this sense, refinancing is similar to consolidation as borrowers get a single loan. However, refinancing can help borrowers to reduce their obligations or save money. When interest rates decline, the borrowers can refinance to get a new loan with lower interest and save money.
The eligibility requirements for refinancing are stable income, good credit performance, and a co-signer. A co-signer is a third party who takes responsibility for repayment if the borrower fails to meet obligations. When it comes to credit score, you need to have 600 or more. If you have a much higher score, you can qualify for lower interest rates.
2. Talk to Your Lender
As mentioned, private student loan borrowers do not have many opportunities to reduce their debt obligations. If you face a financial challenge, it is advisable to contact the lender first. When borrowers honestly communicate their concerns on time, the lenders can help by granting temporary forbearance periods.
Some lenders can also decrease monthly loan payments, in rare cases. Keep in mind that your lender does not have to do any favors to you. Hence, when you contact the lender, try to be as patient and respectful as possible.
The Career Education Corp lawsuit is a good example for for-profit organizations and their unfair treatment of students. As students enroll in education programs to get better employment opportunities, misleading them costs a lot to for-profit corporations. Allegedly, Career Education Corp misled students about job replacement rates, true costs of education, and accreditation of some programs. As a result, the organization was obliged to pay huge amounts under the settlements since 2010.
The Career Education Corp Lawsuit settlements can help many students, but there are still many debtors left behind as settlement only benefits loans directly owed to the corporation. Federal and private student loan borrowers might continue struggling with their debts accumulated for Career Education Corp schools. This guide presented multiple solutions for federal loan borrowers and a few for private debtors. If you cannot select the right program for your qualifications, you can contact our debt specialists. Contact us for a free consultation to find out a way out of your debt struggles.