Nathan Hornes didn’t think he’d still be working in fast food on his 25th birthday. He had a plan: he wanted to be a pop singer-songwriter and had moved from Missouri to Los Angeles after his 2008 high school graduation in order to become a star.
He never thought he would first be getting national press coverage as part of what may be the first organized student debt strike. But he and 14 other students, with the support of the Occupy Wall Street spinoff group The Debt Collective, are taking a stand and refusing to pay back the student loans they took out to attend the for-profit Corinthian colleges.
Corinthian is being dismantled and its students given debt relief on their private loans – the institution is under federal and state investigations and is the target of multiple lawsuits alleging predatory lending practices. But Hornes and the “Corinthian 15” are demanding relief for their federal student loans, too.
When Hornes moved to LA, he worked at Smashburger and Carl’s Jr to pay the bills while he pursued his dream: performing at the Staples Center, participating in a web series, even releasing two songs on iTunes. But two years in, he says, his mother began to press him to go to college.
When he saw a commercial for Everest College, one of Corinthian’s subsidiary schools, he was reminded that his cousin had attended an Everest school in Missouri. She’d made it sound pretty good, telling him Everest had a flexible schedule that allowed her to get a degree while working, and had promised her help with finding a job after graduation.
The first red flag came when he called the customer service line.
“I called up just to get information,” he says, “and then the calls from them did not stop for two or three weeks. They called me every single day. Sometimes, it was three or four times a day.”
But he wanted to get a business degree, to get out of the fast food jobs, so he and his sister Natasha took the bus down to the Ontario, California campus and talked to a recruiter who, he says, pressed them to sign up that very day, telling them that if they didn’t sign up now they wouldn’t be able to do so for six months.
The red flags continued once the siblings started school, Nathan for business and Natasha in a program to be a paralegal. Natasha found some of her classes were offered out of order. One course, Nathan says, had three people teaching it over the course of a 12-week term.
‘My degree is worth nothing’
When he asked how he was supposed to take a final for a class with three instructors, he says he was told not to worry, that he’d be given an A anyway.
“Are you kidding me?” he sighs, recollecting the incident. “I’ve worked my butt off to get my 3.9 GPA, but then you’re telling me there’s other people with a 3.5 or a 3.0 and I know for a fact that they did not do anything?”
Natasha echoes this sentiment, and says people who had never showed up to class were allowed to use their book on exams.
Natasha finished her two-year paralegal program in 2012 and after having no luck finding a job in her field in southern California moved back to Missouri, where she is working at a local grocery store. She has some $50,000 in debt.
“My degree is worth nothing,” she says. “Other colleges laugh.”
Nathan completed the associate’s degree program in 2012, and got his bachelor’s degree from Everest in 2014. He’s still working at Smashburger, now with about $68,000 in student loans to pay off. It’s hard to push forward with a music career when he’s pulling double shifts.
“I did not get the education that I was promised, I did not receive any knowledge that I could use in my day-to-day life, to get a career,” he says.
The big promises of job placement that Everest made, Nathan says, didn’t come true. “They’re giving me job leads from Monster.com and Craigslist. If I wanted those job leads I could do that myself,” he says.
More than that, though, he has found that when he does get a job interview, he is not prepared for the questions he’s asked. “I had a gentleman ask me in an interview, ‘Do you know how to read a sales journal?’ I don’t even know what a sales journal is. He said, ‘How are you in school for management and you don’t even know how to read a sales journal?’”
The Hornes’ story is backed up by a lawsuit filed against Corinthian this September by the Consumer Financial Protection Bureau (CFPB), which, among other complaints alleges that Corinthian “falsely inflated its job placement statistics” in part by paying employers to temporarily hire Corinthian grads and then counting them as hired. It also alleges that internal communications describe prospective students as having “low self-esteem” and “[m]inimal to nonexistent understanding of basic financial concepts”.
On 3 February, the CFPB announced that it had negotiated some $480m in debt relief for Corinthian borrowers who took out the company’s high-cost private “Genesis” student loans. The 40% write-down is a drop in the bucket – according to Corinthian itself, fewer than 40% of its students take out the Genesis loans. For students like Nathan and Natasha Hornes, whose loans mainly came through the federal government’s student lending program, there is no relief in sight.
Nathan and Natasha are now refusing to pay. To them, the Department of Education is partly responsible for the situation they are in, and it ought to forgive Corinthian students’ federal loans. Nathan says, “[The DOE] knew exactly what was going on with Everest years ago, and they’ve allowed them to continue to repeat this same cycle and hurt all these people.”
A ‘debtors union’
The Debt Collective is the newest iteration of Strike Debt, a former Occupy Wall Street working group that has been considering the tactic of debt strikes for years. The Collective, according to group member Ann Larson, is a form of “debtors union”, a membership organization that allows debtors to find others who owe to the same lender and to take collective action around their debt.
The group found the Corinthian students in September of 2014, when the Rolling Jubilee, Strike Debt’s biggest headline-grabber, bought and abolished $3.8m in Everest College student debt. The Rolling Jubilee has also abolished more than $13m of private debt owed by 9,438 former Corinthian students.
“We hoped to roll it into something that would actually allow people to engage in ways that went beyond just pushing the donate button,” Larson says.
The Corinthian debt buy gave them a chance to do so. That first debt buy was all private tuition debt, bought from a debt buyer for pennies on the dollar – $106,709.48 for the lot. (The $13m abolished this month was donated by a debt collector. The Rolling Jubilee agreed to a nondisclosure agreement that prevents them from revealing his name. The steep markdown comes when a loan is significantly overdue, as many of Corinthian’s private loans were: more than 60% of students with a Genesis loan, according to the CFPB suit, defaulted on that loan in within three years.)
Despite the high default rate, Corinthian still benefited from the loans. Dawn Lueck, a former corporate finance manager at Corinthian subsidiary Heald College, explains that federal law requires a school get 10% of its funding from a source other than federal financial aid.
For many for-profit schools, Lueck says, the way around this provision is to constantly raise tuition, so that the school costs more than students are allowed to take out in federal aid. In other words, the CFPB suit notes, every dollar in private loans allowed them to receive an additional $9 from the federal loan program.
Most of Corinthian’s money – more than 80% – comes from federal loans. Indeed, when the Department of Education’s investigation led it to temporarily stop allowing federal student loans to go to Corinthian schools, the company announced that it would probably fold.
The DOE stepped in to supervise the sale of 85 Corinthian campuses to the Educational Credit Management Corporation (ECMC), a private nonprofit that the education department uses to ensure student debtors pay their loans back – using what have been called “dubious” and “aggressive” collection tactics at times. ECMC has never run a college and as part of its deal has agreed not to issue its own private student loans for seven years, and to other consumer protection provisions.
Students who were attending Corinthian schools can possibly get their loans discharged if they attended a school that was closed rather than sold. However, the CFPB notes, if their school is sold, they are expected to continue under the new owners and are probably ineligible for a discharge – “even if your school no longer offers your program of study”.
US representative Maxine Waters was among those who expressed concern at this plan. “I wish that all of the students would have the option of getting out of there,” Waters told reporters.
If students want to transfer out of a Corinthian school, they may find themselves with a different problem: many of their credits are not accepted at more traditional colleges, whether public or private.
Tressie McMillan Cottom, a sociologist who has spent several years studying for-profit colleges, calls it an “enclosure” problem. Making credits transferrable is a mutual agreement, she notes, so it’s not entirely the fault of the for-profits, but it ends up financially beneficial to them.
“You’re stuck in this pipeline,” she says – once you’ve earned some credits you are stuck finishing where you started, and if you want to earn another credential, you have to do it there. “That’s extremely profitable.”
But if that program disappears, students like Ann Bowers have no escape.
Bowers, 54, enrolled in an Everest online program in 2011. She had been out of the workforce for about 10 years with a disability, and wanted to make her way back in. The online program allowed her to take a business marketing course from her home. For three years, she says, she focused on her studies, even serving as an “ambassador” for Everest to other students.
Then a friend of hers invited her to join a Facebook group that was critical of the school. That’s how she found out about the investigation and collapse of Corinthian Colleges. At about the same time, she says, her adviser disappeared, and she found it difficult to reach anyone at Everest who would answer her questions. She says she never received official communication from the school. (Corinthian said it sent letters to all current students.)
Now she still has a year to go in her degree, credits that won’t transfer, and $40,000 in debt, none of it in Genesis loans. She is approaching the limit of what she can borrow through the Department of Education – there is not enough left, she notes, for her to start over, so she’s joining the strike.
The Debt Collective used Facebook as an organizing tool, using it to reach out to current and former students at Corinthian schools. Nathan Hornes and some of his friends created the Everest Colleges Avengers Facebook group, which now has 673 members. They share information, make plans and discuss next steps. With the strike, the students are taking their fates into their own hands, risking significant consequences – including damage to their credit rating, which might prevent them for renting or even finding a job.
Lueck, the corporate finance manager who left Corinthian in 2012, found the group on Facebook and offered to help. She has since testified before the Department of Education about its practices. She created a workshop for the striking students called Know Your Debt, taking them through the details of their loans, making sure that they were well-informed.
A group from the East Bay Community Law Center also gave the students a legal workshop to make sure they are aware of their rights and responsibilities and the potential consequences of their actions.
“I didn’t know what a lot of that stuff meant until yesterday,” Natasha Hornes says. “The fact that they can garnish our wages and take our taxes for a federal loan, that’s really unfair. If that had been broken down to us before, that would’ve changed a lot for us going into school.”
The group is committed, though, to going forward. By going public with an organized campaign, they hope not only to draw more students into their action, but to press the Department of Education into action. Alongside the strike, they plan to file legal “defense to repayment” challenges under state laws in the different states where students attended Corinthian schools.
They may have some added allies in their fight. In December, 13 senators led by Elizabeth Warren sent a letter to Education Secretary Arne Duncan, asking if the DOE had a plan for discharging loans to students at schools like Corinthian and calling for a clearer process for implementing legal protections. The letter concludes:
Without such a process, duplicitous colleges are free to break the law, to suck down billions in federal student loan dollars, to treat students unfairly – and to stick borrowers with the bill.
Asked what he had to say to those who might worry that he is going to do himself even more damage by striking, Hornes says: “They’ve already screwed up my credit. There’s nothing worse that that they can do to my credit. I’m absolutely not going to be able to afford to buy a house, I can barely afford the car that I have, so what’s the point in not going on strike? Go ahead and continue to mess up my credit, because in the end we will prevail.”
Requests for comments from Everest and Corinthian did not get a response.
‘I don’t think big business belongs in education’
The picture of Corinthian is similar to the subprime lending practices that led to the 2008 housing market crash and financial crisis. The school allegedly targeted subprime borrowers with bad credit, low incomes, and low financial literacy, promising them an education that would help them punch their ticket into the middle class.
It filled its coffers with federal loans, but when those dried up, it was on the verge of collapse – a “too big to fail” moment. The government released $35m in order to keep the school from going under.
“They gave them the opportunity to make money because they failed,” Bowers says. “We’re the ones facing all the consequences.”
Like the housing bubble, these “subprime” loans are only a small part of the overall picture. Outstanding student debt in the US is now over $1.3tn, and many of those borrowers are also having trouble paying it back: the national student loan default rate stood at 13.7% in September of 2014.
“I want big changes in the whole education system, I don’t think big business belongs in education,” Bowers says. “At this point I don’t even trust some of the nonprofits, I’m just leery of education in general. It’s just sad, [education] is the one thing I was taught to believe in. They destroyed our trust, they destroyed our faith in education, what do we have?”
But, she concludes: “I’m not going to take it laying down and I don’t think anybody should.”
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