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Originally published Tuesday, September 16, 2014 at 5:57 PM

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Feds sue Corinthian Colleges, alleging predatory lending

The U.S. Consumer Financial Protection Bureau sued Corinthian Colleges on Tuesday, alleging that the ailing California-based for-profit college operator deceived tens of thousands of students and operated an “illegal predatory lending scheme.”


Los Angeles Times

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The U.S. Consumer Financial Protection Bureau (CFPB) sued Corinthian Colleges on Tuesday, alleging that the ailing California-based for-profit college operator deceived tens of thousands of students and operated an “illegal predatory lending scheme.”

The lawsuit adds to a lengthy list of legal and regulatory woes for Corinthian, which announced in July that it would sell off 85 of its campuses — including Everest College campuses in Seattle, Everett, Renton, Bremerton, Vancouver and Tacoma — and close more than a dozen others amid a crackdown by the U.S. Department of Education.

In a federal-court filing Tuesday, the consumer-protection bureau alleged that Corinthian engaged in a widespread pattern of deception, advertising bogus job-placement rates to prospective students and enrolling them in high-interest private student loans.

The case seeks relief for students who have taken out a total of more than $500 million in Corinthian’s private loans since July 2011. Corinthian also operates campuses across the country under the WyoTech and Heald brands.

“Corinthian too often turned the American dream of higher education into an ongoing nightmare of financial despair,” said CFPB director Richard Cordray.

A Corinthian spokesman, Kent Jenkins, said in a statement that the company “strongly disputes the allegations” in the complaint, which he said “wrongly disparages the career services assistance that we offer our graduates.” He said that the average interest rates for the private loans are “well below market rates” at 9 percent, and that fewer than 40 percent of students use the loan program.

Allegations in the consumer-protection bureau’s lawsuit mirror claims made by attorneys general in 16 states, including Washington, for allegedly deceiving students by misrepresenting job-placement rates and the earnings of its graduates, and for its student-lending practices. That investigation is being led by the Iowa attorney general’s office.

Meanwhile, a national consumer watchdog group, the National Consumer Law Center, has called for states to do a better job of oversight on for-profit colleges that leave students tens of thousands of dollars in debt.

But the federal suit delves more deeply into Corinthian’s private lending program, in which 60 percent of students defaulted within three years.

Corinthian and other for-profit colleges get the vast majority of their revenue from federal student loans and grants. But federal law requires that colleges get at least 10 percent of revenue from private sources.

The private lending program, according to the suit, was designed to give Corinthian cash tuition revenue that didn’t come from the federal government.

To come up with that money, the college hiked tuition above federal aid limits, prompting students to seek additional private loans from Corinthian.

The suit alleges that Corinthian required students to pay off some of the loans while still enrolled and had employees pull them out of classes if they got behind.

The practice was so common at an Everest College campus near Atlanta that students and employees referred to one financial-aid staffer as the “Grim Reaper,” according to the suit.

Corinthian spokesman Jenkins said the company had students pay loans while in school to “help them develop the discipline and practice of repaying their federal and other loan obligations.”

Corinthian sold the high-interest private loans to students who were ill-equipped to repay them. More than 57 percent of Corinthian’s students in 2011 had a household income of $19,000 or less, according to documents referenced in the lawsuit.

The suit seeks relief for students who took out the private loans and additional civil penalties.

Corinthian is also facing investigations into its financial aid and marketing practices by more than a dozen attorneys general. And the company disclosed last month it is facing a potential criminal probe by the U.S. attorney’s office in Los Angeles.

Corinthian is still under intense scrutiny from the U.S. Department of Education, which temporarily halted student-aid funding in June amid concerns about job-placement fraud.

As part of a settlement with the department in July, Corinthian agreed to sell or close most of its U.S. campuses.

Material from Bloomberg News and Seattle Times higher education reporter Katherine Long is included in this report.



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