Corinthian Colleges Students Get Debt Relief from $192M CFPB Settlement

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Former students of the now-closed Corinthian Colleges schools will get some relief from their outstanding student debt, thanks to a settlement recently secured by the Consumer Financial Protection Bureau.

The CFPB, together with attorneys general from 13 different states, reached the $192 million settlement last week with defendant Aequitas Capital Management Inc., the private equity firm that funded the student loans at issue.

The settlement will provide partial to total debt relief for about 41,000 former Corinthian Colleges students who attended any of the brand’s more than 100 campuses across the country.

Of the total settlement amount, affected students are expected to receive $183 million.

Student debtors who are currently in default or who were enrolled at a Corinthian school when it shut down in 2015 may qualify for forgiveness of their outstanding debt. Other former Corinthian Colleges students with outstanding Genesis loans can get forgiveness of up to 55 percent of the outstanding principal.

Attorneys involved in the case estimate the average debtor will qualify for $6,000 to $7,000 in relief.

According to the Corinthian Colleges lawsuit, Aequitas allegedly conspired with Corinthian Colleges to maintain the appearance that the school was complying with federal student loan requirements. Those requirements say that for-profit schools like Corinthian must get at least 10 percent of their revenues from non-federal sources.

Aequitas allegedly helped Corinthian College meet that requirement by issuing so-called Genesis loans to Corinthian students. This loan program issued federal student loans guaranteed by Corinthian itself, allowing Corinthian to meet the 10 percent requirement while still taking in billions of dollars in federal funds.

At the same time, the Bureau alleged, these Genesis loans were designed to fail. Aequitas and Corinthian Colleges allegedly knew its students were likely to default on these high-interest loans.

The California attorney general accused Corinthian of using overly-aggressive marketing to target students who were especially vulnerable – students who were “isolated,” “impatient,” or had “low self-esteem,” according to one of Corinthian’s own marketing presentations to Aequitas. Many of the affected students were allegedly the first in their families to go to college. Some were low-income and could not afford to attend school except by taking out loans.

Private investors who took legal action against Aequitas last year accused the company of conceiving the Genesis loan program as a scheme to draw in federal money at the same time Corinthian Colleges was headed for financial collapse. The school eventually declared bankruptcy in 2015, after the U.S. Department of Education significantly restricted Corinthian’s access to federal student loans.

As Corinthian’s financial standing plummeted, its guarantees of the Genesis loans became effectively worthless.

Aequitas is now under receivership, the result of an enforcement action taken by the U.S. Securities and Exchange Commission in March 2016.

The CFPB is represented by its own attorneys Anthony M. Alexis, David Rubenstein, Cynthia Goen Lesser, Rina Tucker Harris, Mary K. Warren, and Jessica Rank Divine.

The Corinthian Colleges Federal Student Loans Lawsuit is Consumer Financial Protection Bureau v. Aequitas Capital Management Inc., et al., Case No. 3:17-cv-01278, in the U.S. District Court for the District of Oregon.