Students left out in the cold when Barnes Business College closed its doors last August may find their student loans forgiven by the state.
Colorado taxpayers may not be so forgiving: Since the school's owner declared bankruptcy, they're the ones who will have to foot the bill. According to C. Marshall Smith, compliance manager with the Colorado Student Loan Program, that tab could run as high as $1.9 million just for CSLP loans.
The U.S. Department of Education has also said it will forgive some federal student loans; officials there decline to discuss specifics since the agency is still investigating Barnes's closure.
Barnes was in the middle of its summer semester when students arrived for class on August 3, 1995, and found a note directing them to a room occupied by a representative of Denver Business College. It was this representative, rather than anyone from Barnes or the state, who delivered the bad news: Their school had shut down. The good news was that Denver Business College would accept Barnes students and even allow them to finish the semester at no charge.
Several hundred students transferred to DBC; others moved on to the Denver Institute of Technology, which offered similar assistance.
But many students could pay a price for taking advantage of those offers. Former Barnes students complain that the CSLP is holding them accountable for the entire amount of their student loans, even if only a portion of their credits transfer from Barnes to a new school.
That's how the CSLP's closed-school statutes work, replies Smith. If a student went on to another school "and even one credit from Barnes transferred, the loans will not be forgiven," he says, adding that his agency is still in the process of determining which loans will be forgiven.
Anna Thacker transferred to DBC only to discover it didn't offer the computer-sciences programs she'd been taking at Barnes. "So I had to start over," she says, "and pay for all that wasted time and classes that don't mean anything."
After she graduated from high school, Larissa Kochis, now nineteen, enrolled at Barnes because the school promised she could get dual associate degrees in accounting and business management in two years "and a guaranteed job."
Kochis paid for her education in advance, taking out two student loans for $6,000 and combining them with $9,000 in savings. She had just three semesters to go when Barnes closed and declared bankruptcy.
Kochis considered transferring to Denver Business College, in which case she not only would have to pay back the Barnes loans, but would also have to shell out another $6,000 to DBC for the two more years of school it would take to get a single associate's degree. All told, her education would have cost $21,000 and taken four years.
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Instead, she opted to attend Front Range Community College, where pursuing her degree will cost $2,500. And since Front Range won't accept any of her transfer credits from Barnes, Kochis's student loans will be forgiven by the state.
Kochis estimates that Barnes still had about $8,000 that she'd paid for advance tuition when it closed. "I want to know what happened to the money," she says. "Legally, it wasn't theirs to spend. It should have been in an account and only paid out as I used it. I want to know what happened to it, but I can't get an answer."
That may not come until September, when a trial is scheduled in U.S. Bankruptcy Court between the Barnes bankruptcy trustee and the U.S. Attorney General's office on behalf of the U.S. Department of Education. At issue is nearly $1 million in Perkins loans. According to the rules of those loans, nine tenths of the money was put up by the federal government and the rest by Barnes; since the money wasn't used for students' educations, the government argues, it should get the money back. The bankruptcy trustee, however, claims the money is an asset of the school. Also disputed is approximately $192,000 withdrawn from the federal student loan account by Barnes officials between July 28 and August 1, just before the school shut down. About $140,000 of that is sitting in a school bank account; according to court documents, the government is unsure if the other $52,000 was "wrongfully expended." The trustee says the money is another asset; the feds say it should be reimbursed to the government.
Either way, Kochis thinks it's unlikely that she'll ever see a penny. "All I know is that I got an expensive lesson," she says. "Never, ever pay for anything in advance.