THINK PROGRESS: $480 Million In For-Profit College Debts Are Actually Worth Less Than $8 Million
Career College Central Summary:
Students who were bilked into taking abusive high-interest student loans out from a leading for-profit college company will get some significant relief, the Consumer Financial Protection Bureau (CFPB) announced Tuesday. A total of $480 million in debt will ultimately be forgiven under the arrangement and 40 percent of the amount will be forgiven immediately for people who took out private loans from Corinthian Colleges’ so-called “Genesis” program.
Under federal pressure over its recruiting and student lending practices, Corinthian just completed a deal to sell half its campuses to a company called ECMC. ECMC will take a number of steps to convert the schools from Corinthian’s notorious business model to one that the Department of Education hopes will operate more benevolently and provide students with better outcomes. Tuesday’s debt writedown will cost ECMC a little bit of money, but in exchange they will be immune from liability in a nearly $570 million CFPB lawsuit.
The loans being forgiven here come from a particularly shadowy corner of Corinthian’s operation. The CFPB’s suit alleges that Corinthian intentionally inflated its tuition charges to exceed the maximum amounts that federal education loans will cover. When students came up short as a result, Corinthian offered them alternative loans under the Genesis program that were far more expensive and came with far more stringent rules. The agency says the company “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.”
Students will get help cleaning up their credit reports in addition to the loan forgiveness, and ECMC will ensure that debt collectors do not threaten law suits against borrowers whose debts are being forgiven. But the ongoing CFPB lawsuit still makes it hard to assess the full picture for Genesis borrowers.
In one sense, the arrangement conceals more than it reveals. In August, Corinthian decided to cash out its portfolio of Genesis loans by selling them to a third-party collector. Corinthian said that it got “approximately $19 million” for the loans. According to CFPB’s lawsuit, that sale included “virtually all” of the Genesis loans that Corinthian owned, “totaling approximately 170,000 loans with a face value of $505 million.” Whoever paid $19 million for the right to collect on those loans would have been hoping to turn that investment into half a billion dollars in collections.
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