The new owner of notorious Santa Ana-based Corinthian Colleges Inc. struck a deal this week with the federal government to provide $480 million in debt relief to as many as 170,000 students who took out huge loans to pay for very little education.
That will knock about 40% off the principal of the expensive private loans most of the students received from the for-profit schools run by Corinthian. While that is a significant chunk of change, the loan forgiveness negotiated by the U.S. Department of Education and the Consumer Financial Protection Bureau (CFPB) does not include an even larger pile of debt.
Federal loans will not be forgiven.
While the average private loan is around $4,700 per student, federal loan debt ranges from $9,000 to $28,000. Corinthian peddled its Genesis loans, with interest rates around 15%, to students to meet a federal requirement that 10% of school revenues come from private sources, then harassed them for payment.
More than 60% of Corinthian students defaulted on their loans within three years.
Corinthian was the parent company of Everest Institute, Everest College, WyoTech and Heald brands, with a couple dozen campuses in California. State Attorney General Kamala Harris sued Corinthian in October 2013 over “predatory” activities that “targeted some of our state's most particularly vulnerable people—including low income, single mothers and veterans returning from combat.”
For-profit companies like Corinthian go after low-income students and veterans because they have access to state and federal education financial assistance. Federal money accounted for nearly half of Corinthian’s annual revenue. Internal company documents obtained by the attorney general described its targeted demographic as “isolated,” “impatient,” individuals with “low self-esteem,” who have “few people in their lives who care about them” and who are “stuck” and “unable to see and plan well for the future.”
At the time, about one-third of the students were at California schools. It was the largest for-profit college company in the state. The lawsuit alleged the schools used “deceptive and false advertisements and aggressive marketing campaigns that misrepresented job placement rates and school programs.”
The federal government came after Corinthian the next year and when it cut off their students’ access to federal loans and grants, Corinthian was toast. The government reached a deal with them last July for the sale of most of their 100-plus schools. About a dozen were shuttered. Education Credit Management Corporation (ECMC), a nonproft student debt collection company, bought 56 of the schools.
As part of the deal, ECMC agreed to halt lawsuits against students, not make any private loans to them for seven years, stop pursuing abusive debt collection practices and help clean up credit reports of students who got screwed. In exchange, the ECMC will be shielded from potential legal liabilities, although a lawsuit by the CFPB is still going forward.
ECMC’s purchase of Corinthian was not universally hailed when first announced. The New York Times noted that the company has its own “checkered history that includes using ruthless collection tactics against student loan debtors who should have reasonably qualified for bankruptcy relief.”
The sale was opposed by a coalition of 50 civil rights, veterans, student, and consumer groups that wrote (pdf) to Education Secretary Arne Duncan, Attorney General Eric Holder Jr., and CFPB director Richard Cordray.