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Student Debt: Why Is It Out of Control?

To fix the problem, fix the policy.

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The Biden administration announced this week that it will forgive $5.8 billion in loans for 560,000 students from Corinthian Colleges, one of the nation’s biggest for-profit chains, which shuttered in 2015. The school has been sued more than once for misleading students on job placement and for using deceptive recruitment practices. This announcement follows a similar one in February, when the administration forgave $415 million in loans from other predatory schools including DeVry University, ITT Technical Institute, and Minnesota School of Business/​Globe University. 

But while there is relief now for these former students, why has this predatory behavior been allowed to grow unhindered for so long? Student debt is out of control in this country, and the long-term answer to it is policy reform

Despite this remedy for Corinthian students, as long as predatory and low-quality colleges like Corinthian continue to operate as they do, debt and valueless degrees will continue to accumulate — to the detriment of students and taxpayers everywhere.

The Biden administration is in the process of finalizing new rules on federal financial aid to help students who have been defrauded and to hold schools accountable for their actions. The need for these rules, like borrower defense to repayment, gainful employment, and others, is exemplified in the stories in our portrait series, Shattered: The Faces of the For-Profit College Crisis,” which narrate what happened to students when they placed their trust and financial and educational futures into the hands of unscrupulous schools like Corinthian. The U.S. Department of Education’s negotiated rulemaking, or NegReg, is nearing the close of its process, and it is anticipated that the department will issue the finalized rules in November. These rules may protect students from enrolling in worthless programs and incurring massive debt to do so.

In addition, further reforms are possible. There are three areas of policy where changes will have the biggest impact: accountability for gainful employment; the College Transparency Act; and funding for evidence-based college completion programs. 

Schools need to have accountability, so students and parents know the education they are buying leads to gainful employment. Part of accountability for schools is having a data network that shows how students are doing at different programs across the country. This kind of data is part of the College Transparency Act, which passed in the House in February as part of the America COMPETES Act and is on its way to the Senate. Finally, funding for evidence-based college completion programs will support students all the way to graduation, so that their hard work and tuition dollars result in a degree that leads to good jobs. 

A quality higher education system provides valuable credentials that lead to better jobs, and better opportunities, and economic stability. Student debt is one symptom of a poorly functioning system. 

What They Are Saying

Stakeholders Cheer Decision to Discharge Debt Held by Corinthian College Students 

On June 2, the Biden administration announced all federal student loans for former Corinthian students would be discharged — $5.8 billion owed by 560,000 borrowers. This is exactly the right action in response to an institution’s systemic fraudulent behavior and a critical step toward better protecting students and taxpayers for the long term. 

Below is a roundup of reactions to this announcement across the stakeholder community. For more information about today’s action, visit Protect Student and Taxpayers.

[This is] absolutely the right decision to cancel the debt of 560k student borrowers from the predatory Corinthian Colleges, but every day without real accountability for which institutions get access to federal subsidies means another cohort of students being defrauded and more tax dollars wasted.”

  • John Arnold, co-chair, Arnold Ventures

We are grateful to see this relief come to more than a half-million defrauded borrowers, and we redouble our commitment to advocate for a strong borrower defense rule that discourages such future abuses and that works in the interest of student borrowers rather than the institutions that defraud them.”

  • Sameer Gadkaree, President, The Institute for College Access and Success 

This is a tremendous student victory, and it belongs to the tens of thousands of borrowers who were cheated and abused by Corinthian Colleges. They never stopped fighting — over three administrations — for the justice they deserve under the law. Today their voices were finally heard, and we would like to thank the Biden-Harris Administration for taking this decisive action. This is also not the end of the journey: there remain hundreds of thousands former students of for-profit colleges like ITT Tech and Art Institute who equally deserve to be freed from student debt. We will not stop fighting until their loans are canceled as well. So we celebrate today, but are back to work tomorrow.”

  • Eileen Connor, Director of the Project on Predatory Student Lending

We’re glad to see the Department taking steps to provide much-needed financial relief to students who were defrauded by Corinthian Colleges. This action is long overdue, but we hope it provides these borrowers with a fresh start and an opportunity to chart a path towards a brighter, more secure financial future. We also hope today’s news is a sign that other decisions are on the horizon for thousands of similarly situated students who are waiting for this kind of relief.”

The borrower defense rule exists for exactly this purpose: to ensure that students who are the victims of fraud, misrepresentation, and illegal conduct by unscrupulous colleges receive the discharge of their debt to which they are entitled under federal law. Throughout his time in office, President Biden has prioritized improving and expanding existing student loan forgiveness programs to deliver targeted relief, and this additional action brings the Administration’s total debt cancellation to $25 billion for 1.3 million borrowers. While we celebrate today’s announcement, far more must be done to prevent predatory behavior by colleges in the first place. No student should be left worse off after attending an accredited institution of higher education, and all colleges receiving federal financial aid dollars must be held accountable for the outcomes of the students they enroll. We continue to urge the Biden Administration to put students first and advance structural reforms to strengthen institutional accountability and ensure that college pays off for every student borrower.”

  • Lanae Erickson, Senior Vice President for Social Policy, Education and Politics, Third Way

We applaud the decision to automatically discharge the federal loans these borrowers took out to attend these unscrupulous schools. Today’s action allows these borrowers to finally move past the harm Corinthian Colleges caused them. I deeply hope that the government will act swiftly to use its existing authority to provide automatic discharges to more borrowers who attended other predatory schools, as hundreds of thousands more students deserve similar relief.” 

  • Kyra Taylor, staff attorney, National Consumer Law Center

This is huge news for countless thousands of students – many of them veterans – who were cheated by Corinthian Colleges out of their GI Bill and loaded up with unfair student debt.”