For-Profit College Chain Sued by Feds for Predatory Lending Scheme
"We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans."
The Consumer Financial Protection Bureau on Tuesday sued for-profit college chain Corinthian Colleges for its operation of an elaborate "predatory lending scheme" that ensnares tens of thousands of students in costly private loans and bullying collections tactics.
Corinthian, one of the largest for-profit, post-secondary education companies in the country, owns the Everest Institute, Everest College, WyoTech and Heald colleges, which together have a total of over 70,000 students. The company attracts students from low-income backgrounds by falsely advertising their schools as a path to good careers and stable finances, the Bureau charges. This includes falsification of job placement rates by "creating fictitious employers and reporting students as being placed at those fake employers," as well as paying employers to hire graduates for temporary periods of time without notifying the graduate of the exchange of money or the short-term nature of the job, according to a Bureau statement.
While nearly 90 percent of Corinthian's revenue comes from federal loans and grant, for-profit colleges are required by federal law to obtain at least 10 percent of their funding from private sources. This is where the private loan program comes in. The lawsuit contends that Corinthian charges exorbitant tuition rates of up to $75,000 for a bachelor's degree, at many times the cost of parallel programs at public schools. By charging well beyond the federal aid limits, Corinthian forces students into expensive private loans, known as "genesis loans," which Corinthian ends up owning. This satisfies the requirement for 10 percent private funding.
Students are mandated to start repaying genesis loans while still enrolled in school at more than double the federal interest rate. With a high default rate of 60 percent of students within three years, the company then uses aggressive and illegal tactics to collect debts. This includes taking students out of class, denying them their education, and withholding diplomas.
According to the Bureau, students took out approximately 130,000 of these private loans for expenses at Corinthian's Everest, Heald, and WyoTech colleges, with a total outstanding balance of $569 million. The lawsuit is seeking relief for these students. "We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans," said Bureau Director Richard Cordray.
Corinthian already faces a litany of lawsuits and investigations by 20 states, the Consumer Financial Protection Bureau, the U.S. Department of Justice, and the Securities and Exchange Commission. As part of a settlement with the Department of Education in July, the company agreed to sell or close a majority of its schools in the United States. However, the DOE is allowing Corinthian Colleges to continue in some capacity despite calls to dismantle the schools entirely. Furthermore, Corinthian and the Department agreed to "work together to establish a reserve fund” of at least $30 million to be used for student refunds. But according to the Bureau's lawsuit, "To date, no reserve fund has been established."
Meanwhile, over the past few days, Occupy Wall Street activists with the Rolling Jubilee Fund of Strike Debt have purchased and eradicated $3.8 million in debt from students enrolled in Corinthian's Everest College.