41K Former Corinthian Students Are About to Get $183M in Loan Forgiveness
Former students of now-defunct for-profit Corinthian Colleges across the country will receive a $183 million settlement from Aequitas Capital Management, the private company that administered loans for Corinthian students.
The settlement will benefit 41,000 students who were taken aback when Corinthian filed for bankruptcy in 2015 and closed its doors.
The Consumer Financial Protection Bureau filed the complaint, and 13 state attorneys general took the lead on settlements for students in their states.
Under the settlement, borrowers who attended Corinthian campuses when they closed or who defaulted on their loans will have their Aequitas student loans fully discharged, along with any accrued interest, a statement by New York Attorney General Eric Schneiderman noted.
All other loans created by Corinthian and Aequitas will be reduced by 55%.
According to the statement, the average borrower will get $6,000 to $7,000 in loan relief from the settlement.
The final settlement is contingent on approval from the U.S. District Court in Oregon. Once that takes place, borrowers will be notified of the next steps within 90 days.
How Corinthian Ruined the 90/10 Rule
For-profit colleges must operate under the 90/10 rule, which allows no more than 90% of their revenue to come from Title IV federal student aid.
The CFPB’s complaint alleged that Corinthian and Aequitas worked together to create the Genesis loan program to make it look like it was meeting the 90/10 requirement, although both were allegedly aware that “most Corinthian student borrowers would default on these loans,” the CFPB explained in a release. “Under the scheme, the defaults would not affect Aequitas because Corinthian was committed to buying back all delinquent loans.”
Corinthian had been investigated for encouraging students to commit financial aid fraud, sued for deceptive marketing and fined for misrepresenting graduate employment rates before selling off half its campuses in 2014.
Overcome by a reported $143 million in debt, Corinthian Colleges, which also operated Everest Institute, WyoTech and Herald Colleges, declared bankruptcy and folded in 2015.
For-profit colleges are notorious for the amount of debt they can impose on unknowing students. As of 2014, 31% of all student loans and almost half of student loan defaults come from the small slice of students who attend these for-profit schools.
Several schools have owed major returns or loan forgiveness to students in the past few years, including DeVry for misleading prospective students, Ashford University for false advertising, and the shuttered ITT Technical Institute.
Lisa Rowan is a writer and producer at The Penny Hoarder.