Corinthian Students Lured By False Job Prospects Will Get Some Loan Relief
Since Corinthian Colleges’ downward spiral into bankruptcy over the summer, current and former students of the for-profit colleges have been left with countless questions regarding the fate of their campuses, degrees, and student loan debts.
Last week, things became a bit more clear as the Education Credit Management Corporation (ECMC Group) and Corinthian Colleges, Inc. announced a closing on the sale of over 50 WyoTech and Everest campuses. ECMC says it plans to transition the for-profit campuses to non-profit status, while making them more affordable and improving student outcomes.
In conjunction with the sale, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education had still more news for students: The CFPB will forgive more than $480 million in student loans for those who took out Corinthian’s high-cost private student loans.
The CFPB’s action will provide relief to both current and past students of Corinthian’s for-profit college chains like Everst, WyoTech, and Heald. Many Corinthian students have reported feeling pushed into the colleges’ private “Genesis loans,” while the loan details and terms remained unclear and unemphasized.
Many Corinthian students were lured into and harmed by the company’s predatory lending scheme. “These consumers were lured into high-cost loans destined to default, and then targeted with aggressive debt collection tactics,” said CFPB director Richard Cordray.
Corinthian Colleges, Inc., which once operated over 100 schools across the country, was caught in a lawsuit filed by the CFPB in September 2014 for hooking tens of thousands of students into its private loan program. Students were lured in by phony job placement prospects and pushed to take out “Genesis loans” to cover the cost of its pricy tuition.
According to the CFPB’s lawsuit, Corinthian was using illegal debt collection tactics to force students into paying back their Genesis loans while still in school. Nearly all students with Corinthian’s private loans were required to make monthly payments while still attending school. Even worse, more than 60 percent of Corinthian students defaulted on these private loans within three years. Even if students didn’t default, they owed more than they ought to: Corinthian’s Genesis loans had interest rates more than twice those of federal loans. The CFPB’s lawsuit is still underway.
Though Corinthian Colleges is selling its colleges and will no longer be in charge, tens of thousands of students will still be living with debt while struggling to qualify for jobs Corinthian promised they could attain. However, with CFPB and Department of Education’s action, students with Genesis loans will see an immediate 40 percent reduction in the outstanding amount they owe in private loans.
Additionally, the CFPB is working to ensure that borrowers who took out Corinthian’s high-cost loans and saw their credit score damaged will have the chance to delete negative credit from their credit report.
ECMC Group has also agreed to not have its own private student loans for seven years, and also plans to put new consumer protections into place for its student borrowers.
Higher Ed, Not Debt campaign director Maggie Thompson commented on the larger problem of predatory, expensive for-profit colleges and the financial burdens they cause: “The fact remains that thousands of students were left worse off by Corinthian Colleges, must one of the many for-profit colleges that drain education funding and take advantage of students aspirations.”
While the CFPB and Department of Education agreement stands to help tens of thousands of borrowers who were scammed by Corinthian Colleges, there’s more work to do. In a moment where student debt nationwide totals nearly $1.3 trillion, students at for-profit colleges have the highest borrowing rates and are the largest group of borrowers to default on their loans.
The CFPB’s loan forgiveness program could set a significant precedent. “The Higher Ed, Not Debt campaign is committed to pursuing similar debt forgiveness and protections for all for-profit schools,” said Thompson.
Annie Wood is a Student Debt Reporter at Generation Progress. Follow her on Twitter @anniewood28.
Posted on 12 February 2015
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