In September, the Consumer Financial Protection Bureau filed a lawsuit with the Northern Illinois District Court against Corinthian Colleges Inc. In it, they accuse the corporation, made up of for-profit colleges Everest, Heald and Wyotech, of predatory student loan lending, illegal collection practices and misleading potential students about job prospects and placement after graduation. In a press release, the government agency specifically stated that Corinthian “lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection practices to strong-arm students into paying back those loans while still in school.”
The Consumer Financial Protection Bureau is asking the Chicago Federal Court to stop Corinthian Colleges from continuing these practices and order them to repay borrowers who have been adversely affected by them. It claims that they violate federal debt collection laws. The change in practices by Corinthian Colleges began recently, as the corporation began to have financial trouble. In the last year, its stock has fallen to less than ten cents a share and has lost almost 95 percent of its total value. It is now in the process of either closing or selling its 107 campuses in the U.S. and Canada. The final fate of the 72,000 students enrolled as of July 2014 is still up in the air.
While there is most likely some validity to these claims, some of it may go nowhere. In the past three years alone, Corinthian Colleges made over 125,000 loans for a total of nearly $570 Million. When you have that many loans across the U.S. and a myriad of collection agencies used to handle them, some mistakes and bad practices are going to be made. Those incidents need to be handled swiftly and the students and graduates harmed repaid.
Private Versus Federal Loans
The complaint about repaying loans in school however is not valid. Federal student loans have a six month grace period after graduation to allow for finding a job and getting prepared to repay those debts. This doesn’t apply to the Corinthian College loans since they are private student loans. Repayment can begin whenever the lender and student agree to a date when signing.
Corinthian Colleges of course disputes the complaint and lawsuit completely. They believe the Bureau has cherry-picked isolated incidents involving its Genesis Loan Program and ignored the success of placing students in well-paying jobs after graduation. These incidents were ones that Corinthian states they had previously identified and began to fix. Responding to the court filing, a corporate representative made the following statement:
“We ask students to make payments while in school to help them develop the discipline and practice of repaying their federal and other loan obligations. The complaint ignores clear, easily obtainable evidence that thousands of Corinthian graduates are hired into permanent positions by large and small employers across the U.S. every year.” The corporation went on to describe its Genesis Loan Program as supplemental financial assistance and not a primary source of loans. Corinthian states that less than 40 percent of is student body even uses the program and that the average cost is only $35 per month.
It’s A Start!
While this lawsuit may only apply to Corinthian Colleges, they are operating nationwide so a conviction will give state governments a precedent to go after other schools they believe to engage in predatory lending practices. Since the lawsuit has been filed by a federal government agency, it also gives more force behind the calls of Senator Elizabeth Warren (D-MA) and other members of Congress for reform in both private and federal student lending.
If you are interested in reading the complete notice that Consumer Financial Protection Bureau has put out for current and former Corinthian College students, it can be found here. The court case designation is Consumer Financial Protection Bureau v. Corinthian Colleges Inc., 14-cv-7194, U.S. District Court, Northern District of Illinois (Chicago).
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