September 18, 2014
Feds demand college forgive $569 million in student loan debt
Federal regulators are demanding that Corinthian Colleges refund more than $500 million in predatory student loans, arguing the school "lured" students in with "bogus" job prospects and then saddled them with tens of thousands of dollars of debt.
The Consumer Financial Protection Bureau (CFPB) said Tuesday it is suing Corinthian to release students from $569 million of debt that they still owe the school, and to refund students for private loans they have already paid off dating back to July 2011.
“For too many students, Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” CFPB Director Richard Corday said.
“We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school," he added. "We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans.”
The CFPB alleges that Corinthian promised students fabricated job placements after they graduated and then failed to deliver. In some cases, the school would secretly pay companies to temporarily hire their students. The school would also count a one-day job as a career, the CFPB said.
In other cases, the school would say graduates were working at fictitious employers that didn't exist, regulators allege.
But a spokesman for Corinthian said the CFPB's allegations are "deeply misleading" and "wrongly disparages" the school's career services department.
"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," Corinthian spokesman Kent Jenkins said in a statement.
Jenkins pointed out that Corinthian employs one career services employee for every 100 students, which he argued is substantially better than the industry average of one employee for every 1,000 students.
Jenkins also said Corinthian self-reported the problems, after they were discovered in isolated instances.
The CFPB also alleged that after Corinthian lured students in, it would turn around and saddle them with unusually high amounts of debt and overbearing interest rates.
According to the CFPB, Corinthian's tuition and fees for a bachelor's degree amounted to as much as $75,000, or more than five times the cost of a similar education at another school.
Then, school officials would demand students repay the loans as soon as classes started, sometimes even calling them out of class to "publicly shame" them, as Cordray puts it.
"Students were asked to meet with campus presidents to discuss why they were late on their payments," Cordray explained. "At one Georgia campus, a financial aid staff member was called the 'Grim Reaper' for removing so many students from class."
Corinthian has about 74,000 students at more than 100 campuses around the country.
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