How much is your student debt really worth? Probably less than you think. Most people are not aware that creditors sell off defaulted debt for pennies on the dollar to a shadowy market of debt buyers and collectors who then try to collect the full amount from the debtor. A New York–based activist collective, Strike Debt, created the Rolling Jubilee fund to buy debt on this secondary market just as debt collectors do. Only instead of collecting on that debt, Strike Debt erases it. Rolling Jubilee has now forgiven almost $4 million in student loans for the bargain price of a little more than $100,000.
Since 2012, Strike Debt has bought up almost $15 million in medical debt — obligations that people incur when they are sick or have an accident but can’t pay their medical bills. This is an admittedly minuscule amount in a multibillion dollar market, but the point of the Rolling Jubilee is to illustrate that debts are written off all the time, just not typically in favor of the debtor. Further proof of the power of creditors is that the government guarantees profits on most kinds of student loans, so they are not for sale on the secondary market. However, we found that some forms of private tuition debt are available for purchase.
Once people realize how little student loans are really worth to the creditors who sell them for pennies on the dollar, they might ask why they should pay the full amount.
Our most recent purchase was a portfolio of private student loan debt held by 2,761 people who attended Everest College, a division of the Corinthian Colleges (CCI) for-profit network. There are over 100 Everest campuses and online degree programs in two dozen states. Since the 1990s, Corinthian has enrolled hundreds of thousands of people in pricey vocational programs, encouraged them to take out student loans and then used those dollars to enrich officials and shareholders — a business model that is little more than legalized theft that funnels money from public to private hands. During its heyday, Corinthian received more than $500 million annually from the federal Pell Grant program, more than the entire University of California system.
Earlier this summer, Corinthian was finally pushed off a financial cliff when the Department of Education (DOE), along with more than a dozen other federal and state agencies, launched an investigation into the company’s deceptive tactics, including lying about graduation rates and employment options for degree holders. An official in the California attorney general’s office testified that the company engaged in the “most persistent, egregious and widespread” abuse of students she had ever seen. And when the DOE temporarily cut off Corinthian’s access to federal funds, the college announced that bankruptcy was imminent.
By abolishing the private debt of Everest College students, we hope to illustrate how the federal government, through its support of market-based reforms in higher education, is more interested in protecting for-profit schools than students.
When CCI announced its bankruptcy, rather than rushing to the aid of students, the DOE stepped in to save Corinthian from collapse, appointing a monitor to help the company negotiate the sale of most of its 107 campuses to an unnamed buyer.
The sale is part of the federal government’s ongoing effort to bring market-based reforms to higher education at all levels. The DOE says it is protecting taxpayers from having to reimburse students who would be eligible for a debt discharge if their campus shut down. But why should students have to pay while the company that defrauded them gets a helping hand?
A diploma produces an economic benefit only when access to the resources one needs to thrive, including a fair income, are available.
Instead of answering that question, the DOE has been focused on requiring colleges to ensure their value to consumers. Colleges whose graduates don’t find jobs and repay their student loans in a timely fashion would be ineligible for federal funds. The proposed college rating system would treat education as a commercial product and students as customers who simply need better information to choose a college — the way they choose a brand of cereal.
The thinking behind President Barack Obama’s higher education policy is also behind the DOE’s effort to save Corinthian. If Corinthian is just a bad brand in an otherwise healthy education market, then assuring the sale of the campuses is in the best interest of students. Yet according to federal rules, students whose campuses are sold will be rendered ineligible for a discharge of their loans. Those with the most to lose have had no voice in the debate about what happens to Corinthian. Defrauded students are at the mercy of the DOE as it pursues a strategy of weeding out bad brands instead of defending their interests.
The federal government’s response to the Corinthian debacle should push us to ask deeper questions about the role of college in helping people achieve economic security.
In addition to being buried by debt, many people find themselves under- or unemployed even after earning a college degree. The widening gap between the rich and poor is a bigger problem than the gap between those who attended college and those who didn’t. As the Economic Policy Institute recently reported, “Education is not the cure for high unemployment or for income inequality.” Tressie McMillan Cottom has further explained that “for those of us looking for economic security who are not fortunate or able enough to be fast-tracked into the good jobs, there isn’t much college can do.”
Policies that encourage broad access to quality higher education are worth fighting for, but they shouldn't blind us to the reality that a diploma produces an economic benefit only when access to the resources one needs to thrive, including a fair income, are available.
If one takes a step back and looks at the economy as a whole, it’s clear that Corinthian is not just a bad operator in an education marketplace that provides struggling students and families with a path to dignity and security.
Instead, CCI’s alleged crimes provide a startlingly clear example of a crisis of inequality that can’t be solved by ensuring that colleges operate according to market-based logic. Nor can it be solved by protecting Corinthian from the outcome of its actions, at the expense of students who deserve to have their debts discharged.
People with private loans from for-profit colleges are not the only ones who ought to have their debts canceled. In fact, all students should have the right to learn and prepare for careers without the burden of a lifetime of debt. To offer this kind of real value, public higher education should be free. Current debtors should have the opportunity to negotiate a write off of their debts, just as creditors do. Strike Debt bought student loans for pennies on the dollar. The question student debtors around the country should start asking is, “Why should we pay more?”