Thousands of students who took out private loans to attend Ashford University and the University of the Rockies, a pair of for-profit colleges run by Bridgepoint Education, will have their debt forgiven and payments refunded, the Consumer Financial Protection Bureau said Monday.
In the case of Bridgepoint, the CFPB is making the company pay more than $24 million to refund and discharge debt that students accumulated through an in-house loan program that used deceptive marketing to lure borrowers. CFPB officials say the company misrepresented the total cost of the loans by telling prospective borrowers that they could pay them off by sending as little as $25 a month. But the typical payments on the loans were far higher than that amount, according to the consent order.
“Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said CFPB Director Richard Cordray.
Students who are eligible for refunds and loan discharges will be contacted by Bridgepoint. The company ran the private loan program from 2009 until 2013, lending more than $24 million and collecting roughly $5 million in principal and interest from these loans. Nearly $19 million remains outstanding.
Bridgepoint must require all students to use the CFPB’s financial aid disclosure tool that provides information on loans, grants, graduation rates, loan defaults, potential salaries for their programs and post-graduation budgeting. The company must also contact the credit bureaus to remove any adverse information related to the private loan program off borrowers’ credit reports. Bridgepoint has to pay an $8 million fine to the CFPB.
Officials at Bridgepoint neither admitted or denied the allegations. In a statement, they said that the company agreed to the order to put the case behind it. The company maintains that it acted in good faith and provided all appropriate disclosures for the loan programs.
The company noted that the CFPB did not take issue with the interest rates on in-house loans, which were either zero or comparable to the rates on federal student loans that start out around 4 percent.
“This agreement simply allows us to return our full and undivided focus to our students and their success,” Andrew Clark, president and chief executive of Bridgepoint Education, said in the statement. “We believe in the high quality of education our institutions provide and we will continue helping students achieve their goals of a quality and affordable college education.”
The San Diego-based company has faced its share of regulatory problems this year. In August, the Department of Education ordered Bridgepoint to pay a fine for failing to verify enrollment before disbursing federal grants and loans, and handing students more financial aid dollars than the law allows. The month before that, the Justice Department launched an investigation into whether the company is violating a law that prohibits for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding.
In-house student loan programs have been a source of grief for some of the largest for-profit colleges in the country. The Securities and Exchange Commission sued ITT Educational Services, chief executive Kevin Modany and former chief financial officer Daniel Fitzpatrick for allegedly making false and misleading statements about the failure of two in-house student-loan programs. Instead of disclosing the tens of millions of dollars in impending losses to investors, the company made secret payments on delinquent accounts to delay defaults, the SEC said.
Those same loans are at the heart of a separate lawsuit the CFPB filed against ITT. The government watchdog accused the company of providing zero-interest loans to students but failing to tell them that they would be kicked out of school if they didn’t repay in a year. When students could not pay up, ITT allegedly forced them to take out high-interest loans to repay the first ones, the CFPB said.
The allegations are similar to ones the CFPB made against the now-defunct Corinthian Colleges, a for-profit school that ran an in-house student-loan program known as Genesis. The agency 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 then received a slice of the lender’s fees.
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