The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education (USDE) announced Tuesday (Feb. 3) that it will be providing $480 million in forgiveness for borrowers who took out Corinthian College’s high-cost private student loans.
As part of the agreement, the new owner of a number of the Corinthian schools — ECMC — will cease its private student loan program for seven years and will abide to a set of consumer protection regulations.
“Today’s action will provide substantial relief to current and past students who were harmed by Corinthian’s predatory lending scheme,” said CFPB Director Richard Cordray. “These consumers were lured into high-cost loans destined to default, and then targeted with aggressive debt collection tactics. We will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry.”
This issue stems from November of last year, when the ECMC Group worked with the federal government to find an agreement to take over many of the Everest and WyoTech campuses, which were owned by Corinthian Colleges, Inc. — a major for-profit college company that operated more than 100 schools. According to a news release issued by the CFPB, in September 2014, the CFPB sued Corinthian Colleges, Inc. for luring tens of thousands of students to take out private loans, known as “Genesis loans,” to cover expensive tuition costs by advertising fake job prospects and career services. The lawsuit also alleges that Corinthian used illegal debt collection tactics to force students into paying back those loans while still in school.
“Under the Genesis loan program, nearly all student borrowers were required to make monthly loan payments while attending school. More than 60 percent of Corinthian school students defaulted on these high-cost loans within three years. Even for borrowers who did not default, interest rates were more than twice as expensive compared to interest rates on federal loans. The CFPB’s litigation is ongoing,” the CFPB reported.
According to the CFPB, it granted a release, based on ECMC’s agreement to the following:
Provide more than $480 million in debt relief to Corinthian victims: These students will see an immediate 40 percent reduction in the amount that they owe on outstanding private student loans. Eligible borrowers will be notified of the loan forgiveness and automatically receive the relief.
- Not offer private student loan programs: The CFPB sued Corinthian Colleges for alleged predatory practices related to its high-cost Genesis loan program. ECMC will not offer its own private student loans to current and future students for a period of seven years.
- Halt lawsuits threats and improper debt collection practices: The CFPB’s lawsuit alleges that Corinthian engaged in strong-arm tactics to collect private student loan debt. ECMC has taken steps to ensure that borrowers who have outstanding Corinthian loans will not be sued or threatened with legal action. In addition, borrowers will not be harassed or have their debts disclosed to third parties.
- Remove negative information from student borrowers’ credit reports: Many borrowers lured in by Corinthian’s efforts to induce them into high-cost loans have seen their credit report damaged. Credit reporting agencies will receive instructions to delete any existing negative credit reporting information from borrowers’ credit reports.
- Implement strong, new consumer protections: The CFPB’s lawsuit alleges that Corinthian made a range of misrepresentations to prospective students. As part of today’s announcement, ECMC is obligated to adhere to an agreement with the U.S. Department of Education that provides for flexible withdrawal policies, clear information on job prospects, and other protections.