The Washington PostDemocracy Dies in Darkness

Government watchdog wins $530 million lawsuit against for-profit Corinthian Colleges. Too bad it will never see a dime.

Students wait outside Everest College on April 28 in Industry, Calif., hoping to get their transcripts and information on loan forgiveness and transferring credits to other schools. Corinthian Colleges shut down all of its 28 campuses April 27, displacing 16,000 students. (Christine Armario/AP)
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A federal judge has ordered Corinthian Colleges to pay $550 million to the Consumer Financial Protection Bureau, resolving a year-long lawsuit against the for-profit chain for allegedly steering students into predatory loans.

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“Today’s ruling marks the end of our litigation against a company that severely harmed tens of thousands of students, turning dreams of higher education into a nightmare,” CFPB Director Richard Cordray said in a statement.

The government’s consumer watchdog accused Corinthian of trapping students into private loans, known as “Genesis loans,” that had interest rates as high as 15 percent. The bureau said Corinthian set its tuition and fees for bachelor’s degrees at $60,000 to $75,000 to force students to borrow from the program, and that the company then received a slice of the lender’s fees.

Corinthian, which ran Everest Institute, Wyotech and Heald College, has long disputed the allegations. The company argues that fewer than 40 percent of its students took out Genesis loans and that the average interest rate was 9 percent, similar to other private student loans.

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But former student Tasha Courtright told The Washington Post in April that administration at Everest Ontario in California aggressively promoted the loans. She recalled a financial aid officer pulling her out of class to warn her that she would have to drop out of school if she didn’t take out a Genesis loan.

“They told me that I was no longer eligible for the grant that was supposed to cover my tuition, but I was already a year into the program, so I wasn’t going to leave,” said Courtright, who graduated in 2012 with $41,000 in loans. “I’d never been to college. I figured these people are regulated by the government, so they’re not lying to me.”

Allegations of predatory lending, deceptive marketing and lying to the government about its graduation rates ultimately led to Corinthian’s downfall. The chain filed for bankruptcy in May after a year-long tailspin triggered by the Department of Education withholding federal funds and forcing Corinthian to sell or close its schools.

In its bankruptcy filing, Corinthian said it had $143 million in debt and less than $20 million in assets. Because the company has dissolved and its assets have been distributed according to the liquidation plan in its bankruptcy case, Corinthian cannot pay CFPB the $530 million judgement.

Bureau officials say they will continue to pursue relief for consumers harmed by Corinthian, and are concerned about debt buyers’ efforts to collect on the Genesis loans.

“We all have much more work to do before current and past students who were hurt by Corinthian’s illegal practices can be made whole,” Cordray said. “We remain deeply concerned about risks facing student borrowers in the for-profit space and will continue to be vigilant in rooting out harmful practices.”

As a part of its purchase of half of Corinthian’s 107 campuses, ECMC Group reached a settlement with a company that bought a majority of the Genesis portfolio to write down $480 million of the debt. Thousands of current and former Corinthian students as a result have had their debt forgiven. Students witnessed an immediate 40 percent reduction in the principal balances on their loans, with the remainder forgiven over the next few years.

[Here’s how a debt collector plans to turn around failing for-profit colleges]

Although ECMC said it would forgive many of the Genesis loans as a part of the $24 million sale, the settlement went beyond the scope of the original agreement and wiped out a larger percentage of debt. The Department of Education ponied up nearly two thirds of the $12 million it received from ECMC to cover any penalties that could arise out of the government’s ongoing probe of Corinthian.

The Corinthian saga is far from over. The department is wading through hundreds of claims from Corinthian students asking for their loans to be forgiven because they were defrauded by the school.

Under pressure from lawmakers and advocacy groups, the administration in June said anyone who had attended a Corinthian school as of June 20, 2014, could apply for what’s known as a closed-school discharge of their federal loans. All other students were invited to file a claim if they could prove they were defrauded by their colleges.

“The Education Department needs to take immediate action to provide widespread debt cancellation of the federal student loans issued to former Corinthian College students who faced these illegal practices,” said Chris Hicks, an organizer for Jobs With Justice’s Debt-Free Future campaign. “The department must acknowledge that this institutional behavior creates a class of former students who shouldn’t have to once again prove on a case-by-case basis that they were victims of these practices.”

[It may be a long time before many Corinthian students get debt relief]

As of the end of August, 7,815 Corinthian students impacted by the school’s closing have applied for loan forgiveness and 3,128 of those applications have been approved. Those resolved cases involved about $40 million in federal student loans. The department has no idea how much it will ultimately cost to forgive the debt of all eligible borrowers. Corinthian students have borrowed about $3.2 billion in federal loans since 2010.

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