Federal Court Rules Against Corinthian Colleges in Predatory Lending Lawsuit

By Allie Bidwell, Communications Staff

A federal court on Tuesday ruled against Corinthian Colleges in a lawsuit the Consumer Financial Protection Bureau (CFPB) filed last year over predatory lending practices.

The CFPB first sued the for-profit college chain in September 2014, saying in its complaint that Corinthian lured students into taking out private student loans to finance their education, misrepresented the school’s financial interest in those loans, and misled students about their job prospects. The bureau went on to say that Corinthian used illegal debt collection methods to force students to repay those loans while they were still in school.

The court’s default judgment requires Corinthian to make more than $530 million in restitution payments to the affected students who took out the private loans Corinthian backed. The judgment also claims Corinthian pushed the private loans on students between March 2008 and July 2014 in order to “charge its students more in tuition than would be covered by Title IV funding from the United States Department of Education (“ED”).” More than 60 percent of students who took out these private loans defaulted within three years, the judgment said. By comparison, the national three-year cohort default rate for federal student loans is 11.8 percent.

“Corinthian did this because ED required schools like Corinthian to obtain at least 10% of their revenues from sources other than Title IV funds,” the judgment said. “Thus in order to continue receiving those funds, which was the main source of Corinthian’s revenue, Corinthian burdened its students with this additional cost.”

CFPB Director Richard Cordray said in a statement that Corinthian has “turned the American dream of higher education into an ongoing nightmare of debt and despair.”

“We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school,” Cordray said. “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.”

Corinthian had been on the brink of a complete shutdown since the summer of 2014, when ED placed it on a level of increased financial oversight. In July 2014, ED came to an agreement with Corinthian that the chain would either sell or close all of its remaining campuses over a six-month period, to avoid a sudden disruption for the tens of thousands of students who were enrolled at the time. But after ED fined the Corinthian-operated Heald College $30 million in April, the company announced it would immediately shut down 28 remaining campuses in California, Hawaii, and Oregon, which displaced about 16,000 students.

Corinthian shortly thereafter applied for bankruptcy, and thousands of Corinthian students began pressuring ED to discharge their federal student loans. In June, ED announced a multi-track process for some Corinthian students to receive debt relief, and in August, ED announced it had begun the process to develop regulations to streamline the loan forgiveness process for students who file defense to repayment claims on their federal student loans.


Publication Date: 10/29/2015

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