THECOMMONWEALTHOFMASSACHUSETTSOFFICEOF THEATTORNEYGENERAL

ONEASHBURTON PLACE

BOSTON, MASSACHUSETTS02108

MAURAHEALEYATTORNEYGENERAL

TEL:(617)7272200www.mass.gov/ago

February4,2015

TheHonorableArneDuncanUnitedStatesDepartmentofEducation400MarylandAvenue,SWWashington,D.C.20202

DearSecretaryDuncan,

IwritetoexpressmysupportfortheviewsofSenatorsWarren,Blumenthal,Durbin,Hirono,Merkley,Reed,Whitehouse,Baldwin,Boxer,Franken,Markey,Murphy,andSchatzsetforth intheirDecember9,2014letter(the"Senators'Letter"). TheSenators'LetteraskstheDepartment"toimmediatelydischargefederalstudentloansincurredbyborrowerswhohaveclaimsagainstCorinthianColleges,Inc.,includingthoseborrowerscoveredbythelawsuitsfiledbytheMassachusettsAttorneyGeneral.. .

WerequestthattheDepartmentdosopromptly,andrelieveMassachusettsstudentsoftheunlawfullyinduceddebtswhichCorinthiancausedthemtoincur.

TheMassachusettsAttorneyGeneral'sOfficeconductedalengthyinvestigationofCorinthianColleges,Inc.,withtheinitialsubpoenaservedinearly2011. OurinvestigationfoundthatCorinthianengagedinnumerousactsofdeceptionandunfairnessinviolationofMassachusetts' consumerprotectionlawsandtheMassachusettsAttorneyGeneral'sregulationsthatexplicitlyaddresstheconductofcareerschools.CorinthianrelentlesslypursuedpotentialMassachusettscustomers,misleadingthemandpreyingontheirhopesandfearsinanefforttosecurefederalstudentloanmonies. Specifically,ourinvestigationfoundCorinthianmisrepresentedtoMassachusettsstudents:

theurgencyofenrollmentandtheneedtoenrollimmediatelyinCorinthianschools, theschool'shistoricalsuccessinfindingjobsinthestudents'fieldofstudy, theearningsofgraduates, theemploymentassistancetheschoolprovidesgraduates, thenature,character,andqualityofeducationalprograms, thetransferabilityofcredits, theavailabilityofextemships,and thenatureandavailabilityoffinancialaid.

OurlitigationcomplaintpendinginSuffolkSuperiorCourtinBostonprovidesavarietyofexamplesoftheseunlawfulactions,andalsosetsforthCorinthian'sgeneralsystemicplanfordeceivingMassachusettsstudents. Ourprincipalreasonforfiling ourstatelawenforcementactionwasandcontinuestobeourdesiretohelpstudentswhowereinducedbytheschool'smisrepresentationstoincursubstantialdebtwhichtheyarenowunabletorepay.Inourview,theviolationsofstatelawsetforthintheCommonwealth'scomplaintsupportafulldefensetorepayment.

WeagreewiththeSenators'Letterthataccountability inthisareaisessential,bothfromthestandpointofdeterrenceandoffairnesstostudents. Schoolsshouldnotobtainpublicmoniesbasedonactionsinviolationofstatelaw,andstudentsshouldnotberequiredtopayforsuchviolations.1 Basedonourinvestigativefindings,webelievethefederalloansofCorinthianstudentsinMassachusettsshouldbecanceled. WearewillingtoassisttheDepartmentinanywaywecantocreateasimpleandspeedyprocessinordertoimplementsuchcancellation.

TheneedtocancelstudentloansisparticularlyacuteinCorinthian'scase. Theschool'sliabilitieslikelyexceeditsassets,andtheschoolhasstatedthat intheabsenceofalifelinefromtheDepartmentitwouldfileforbankruptcy. Whileourlawsuit,filedlastApril,seeksfullrefundsforstudents(aremedybroaderthanthecancellationofstudentloans),givenCorinthian'sfinancialposition,thesurestwaytohelp

2studentswillbethroughcancellationoftheirfederal loans.

TheDepartment'sauthorityisthuscrucialnotonlytothestudentsburdenedwithdebtasaresultofCorinthian'sunlawfulconductbutalsotothestatesthathaveconductedinvestigationsofCorinthian.Wherestateinvestigationsofschoolsfindactsorpracticesinviolationofstatelaw,andwhereCorinthian'scircumstancessuggestthatlitigationmaynotachievepromptandmeaningfulrelief,itisessentialtoprovideanefficientmechanismforloancancellationorforgivenesstostudentsinjuredbytheschool'smisconduct.

Thismeans,inourview,specifyingwhatconstitutesaborrowerdefensesufficienttojustifycancellationofstudentloans,and,moreover,whatprocesswillbeusedtorecognizethedefense. TheDepartment'sguidanceisparticularlyimportantwhereastateinvestigationfinds widespreadschoolmisconductwhichwouldjustifyacompletedefensetorepaymentofstudentloansunderthelawofthestate. (Anexampleisdeceptivestatementsormisrepresentationsonwebsitesorinwrittenmaterialsprovidedtoprospectivestudents.) Insuchcases,aunifiedprocessdealingwithalargenumberofstudentswillbemoreefficientandmuchfairerthanpiecemealdeterminationofindividualclaimsbythosefewstudentsabletonavigatetheprocessontheirown.

WeagreewithyourAugust2014statementinresponsetoaSenateinquiry,inwhichyounotedthatstudentsmustnotberequiredtodefaulton theirloansandthentodefendacollectionactionincourt.3Torequirestudentstodefaultbeforetheycanasserttheirrightswouldbeneitherfairnorappropriate.Foronething,sucharequirementwouldplacestudentsintheuntenablepositionofdefaultingwithoutadeterminationthatthedefenseisjustified. Foranother,thecostofdefendingacollectionactionoradministrativegarnishmentorsimilarproceedingmaywellexceedthevalueoftheloan(in

'DepartmentofEducationLetterin ResponsetoSenateinquiry,datedAugust4,2014("T]heDepartmentrecognizesasadefensetorepaymentofDirectLoansaclaimthatthe borrowerhasagainsttheschool thatis basedonthemakingofthe loanortheprovisionofeducational services,ifStatelawrecognizes suchaclaimandiftheborrowerprovestheelementsrequiredtoestablishtheclaim....[T]heborrowerisnotrequired tosueorobtainajudgmentagainsttheschool inorderto assertthe...defense").

2Whiledirectrecoveryfrom Corinthianposessignificantchallenges,wearenot rulingoutsuccessorliabilityasameansofrecompense. However,thisraisesadditionalissues understatelaw.

3 See Footnote1,supra. 2

Massachusetts,thetypicalCorinthianloanforgraduateswasinthe$8,00010,000range,andfordropouts,whocompriseasubstantialportionofstudents,itwasmuchlower). Incaseswherestateinvestigationsfindsystematicmisconductinvolvinghundredsofstudents,itwouldbeinefficienttorequireeachstudenttoseparatelydefendacollectionactionandtorequireadjudicationofnumerousseparateactionsinvolvingcommondefenses.

Inourview,stateattorneygeneralinvestigativefindingsofrelevantstatelawviolationsshouldbeconsideredsufficienttoestablishborrowerdefensestorepayment.Inthealternative,theDepartmentmaydecidetoconductitsowninvestigationoftheschool'sconductanduseanadministrativeprocesstoestablishtheborrowerdefenses.4

Withrespecttotheimplementationofborrowerdefenses,webelievethatonceschoolmisconductconstitutingadefenseisestablished,theDepartmentshouldtakeappropriateadministrativeactiontocanceltheloans. ShouldtheDepartmentneedinformationortestimonyfromstudents,ourofficeisavailabletoobtainsuchinformationfromstudentsinMassachusettsorguidethemthroughtheprocess.

WehaveworkedcloselywiththeDepartmentinprovidingloanreliefforstudentsofforprofitschoolsenteringintoconsentjudgmentswithouroffice,andweverymuchappreciatetheassistancerepeatedlyprovidedbyDepartmentstaff. ForCorinthianstudents,however,suchreliefisnotpossible. WeurgetheDepartmenttotakeactiontocancelthesestudents' loans.

Iameagertospeakwithyouaboutthismatter.Inthemeantime,withanyquestionspleasealsocontactGlennKaplan,ChiefoftheInsuranceandFinancialServicesDivisionintheMassachusettsOfficeoftheAttorneyGeneral,at6179632453.

Sincerely,

AttorneyGeneralofMassachusetts

4Thismaybeamatterinwhich stateenforcerscanintervenewiththeassentoftheDepartmentandassistin theprosecutionofthematter.

3