The Consumer Financial Protection Bureau and the U.S. Department of Education announced Tuesday more than $480 million in forgiveness for borrowers who took out Corinthian Colleges high-cost private student loans.
ECMC Group, the new owner of a number of Corinthian schools, also will not operate a private student loan program for seven years and agreed to a series of new consumer protections.
ECMC Group in November worked with the U.S. Department of Education to acquire Everest and WyoTech campuses in 17 states. The 50 campuses were owned by Corinthian Colleges, which was one of the largest for-profit college companies in the U.S., operating more than 100 schools.
ECMC had sought a release from the CFPB from its potential liability for Corinthians alleged illegal activity.
The CFPB sued Corinthian Colleges Inc. in September for luring tens of thousands of students to take out private loans, known as "Genesis loans," to cover expensive tuition costs by advertising bogus job prospects and career services.
The lawsuit alleges that Corinthian used illegal debt collection tactics to strong-arm students into paying back those loans while still in school. Under the Genesis loan program, nearly all borrowers were required to make monthly payments while attending school. More than 60% of Corinthian school students defaulted on these high-cost loans within three years. Even for borrowers who did not default, interest rates were more than twice as expensive compared to interest rates on federal loans. The CFPBs litigation is ongoing.
The CFPB announced Tuesday that it believed granting ECMC a release from potential liability was appropriate only if ECMC would work to provide debt relief for borrowers. Because ECMC has never operated an institution of higher education, the CFPB also sought to ensure that they operate the schools in a fair and transparent manner, given the harm caused by Corinthian.
The CFPB granted a release, based on ECMCs agreement to the following:
Provide more than $480 million in debt relief to Corinthian victims: Although Corinthian Colleges will no longer operate the schools, tens of thousands of students remain saddled with debt incurred under Corinthians alleged predatory and illegal lending scheme. ECMC worked with the CFPB and U.S. Department of Education to secure $480 million in debt relief for borrowers who took out Corinthians high-cost private student loans. These students will see an immediate 40 percent reduction in the amount that they owe on outstanding private student loans. Eligible borrowers will be notified of the loan forgiveness and automatically receive the relief.
- Not offer private student loan programs: The CFPB sued Corinthian Colleges for alleged predatory practices related to its high-cost Genesis loan program. ECMC will not offer its own private student loans to current and future students for a period of seven years.
- Halt lawsuits threats and improper debt collection practices: The CFPBs lawsuit alleges that Corinthian engaged in strong-arm tactics to collect private student loan debt. ECMC has taken steps to ensure that borrowers who have outstanding Corinthian loans will not be sued or threatened with legal action. Also, borrowers will not be harassed or have their debts disclosed to third parties.
Remove negative information from student borrowers credit reports: Many borrowers lured in by Corinthians efforts to induce them into high-cost loans have seen their credit report damaged. Credit reporting agencies will receive instructions to delete any existing negative credit reporting information from borrowers credit reports.
- Implement strong, new consumer protections: The CFPBs lawsuit alleges that Corinthian made a range of misrepresentations to prospective students. As part of todays announcement, ECMC is obligated to adhere to an agreement with the U.S. Department of Education that provides for flexible withdrawal policies, clear information on job prospects and other protections.