LEXOLOGY: The Consumer Financial Protection Bureau’s case against corinthian colleges
Career College Central Summary:
My most recent blog entries have been focused on the CFPB’s new mortgage servicing rules and the Flagstar Bank enforcement case. I’m going to switch gears for a moment and take a look at the Corinthian Colleges case.
A couple of quick points regarding student loans in general are in order: It is estimated by the CFPB that there is approximately $1.2 trillion in outstanding student loan debt, “with more than 7 million Americans in default on more than $100 billion in balances.”
Student loans have surpassed “credit cards and auto loans to become the second biggest source of personal debt in the U.S., trailing only mortgages.” This $1.2 trillion in outstanding student loan debt hasn’t gradually accumulated over decades; it’s a number that has tripled in the last decade alone.
A lot of this increase in outstanding student loan debt has been driven by for-profit universities. For a Forbes.com article entitled “For-Profit Universities: The Yugos of Higher Education,” Steven Salzberg wrote, “For-profit universities have been spreading like wildfire the past few years, thanks to the growth in Internet access, aggressive marketing, and, as we’ve learned recently, government-subsidized student loans. Some of these “universities” are enormous, such as the University of Phoenix (part of Apollo Group), with over 400,000 students. The U.S. government has recently figured out that students at these universities are failing to repay their government-subsidized loans at alarming rates…” And Mr. Salzberg’s article is over four years old! Finally, it’s no secret that students at for-profit universities often come from economically disadvantaged backgrounds and don’t have the guidance and information enjoyed by students from more affluent backgrounds.
Now let’s look at the Corinthian Colleges case. Last month, on February 3rd, the CFPB posted an announcement on its Website about how the CFPB secured $480 million in debt relief for current and Corinthian students. Prior to that, on September 16, the CFPB posted an announcement that it had sued Corinthian Colleges for “its predatory lending scheme”…alleging “that Corinthian lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.”
Click through to read the full article.