Debt Relief for Corinthian’s Former Students
Since the recent bankruptcy of Corinthian Colleges early in 2015, many former students have been on a mission to have their student debt forgiven, but the outcome may come with a price – a steep tax bill.
In late spring Corinthian Colleges, also known as Everest, WyoTech, and Heald colleges, filed for Chapter 11 bankruptcy after being fined $30 million by the Department of Education for allegedly overstating job placement rates. The institution used this dubious marketing tactic to lure in students hopeful of attaining degrees for advancement in their career efforts.
The DOE said students who believe they were victims of these establishments may apply for loan forgiveness as long as any credits earned were not transferred to another school. Since 2010 approximately 350,000 students attended, taking out federal loans totaling close to $3.5 billion.
A staggering 16,000 students were still enrolled when they closed the doors to their last operating campuses and many of those students learned of the news only after attending classes on April 27.
Many of Corinthian’s students were also encouraged to take out high-cost private loans for these schools and may now also be eligible for debt relief to the tune of $480 million paid to wipe out at least a portion of these loans by the ECMC Group, the company which acquired 56 of these campuses in 2014.
A California bill, introduced by Senator Janet Nguyen, proposed protection to students who have to pay income tax on their loan forgiveness. The bill passed the state Senate Tuesday and is awaiting approval from the Assembly before the end of the legislative session on September 11.
For students to receive the debt relief U.S. congressional action must take place. Otherwise former students will likely have to cough up federal taxes on loan forgiveness in addition to state taxes should they live outside California.
- Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
- Negotiates with your creditors on your behalf.
- Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
- Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
- Combines all your debts and creditors into one monthly payment.
- Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
- You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
- Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
- Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
- Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
- Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
- Borrowers can receive funds from their loan within only a few days.
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