WASHINGTON The acquirer of a for-profit college chain sued by the Consumer Financial Protection Bureau will forgive over $480 million in student debt under a deal announced Tuesday.
The CFPB alleged in September that Corinthian Colleges had made false claims to attract student loan borrowers and used aggressive collection tactics. The chain had already been forced to close a dozen schools by the Department of Education, which suspended its access to federal aid. Among the consumer bureau's claims were that Corinthian falsely promised job placement to borrowers, and that students with outstanding debt were pulled out of class.
As part of its acquisition of over 50 campuses run by the company, ECMC Group agreed to provide the debt relief to current and past students who were affected by Corinthian's "Genesis loans" program, the CFPB announced along with the Department of Education. The buyer a nonprofit that services federal student loans will wait seven years before offering its own private student loans and will halt lawsuits against borrowers with outstanding Corinthian loans. (Closure of the acquisition was announced Tuesday.)
"These consumers were lured into high-cost loans destined to default, and then targeted with aggressive debt collection tactics," CFPB Director Richard Cordray said in a press release. "We will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry."
ECMC Group plans to convert the acquired Corinthian campuses which operate as WyoTech and Everest into nonprofit status. The schools will be managed by Zenith Education Group, a newly formed subsidiary that provides career school training.
The acquirer had asked the CFPB for a release from Corinthian's legal liability, which the bureau said it would grant only if ECMC took steps to provide loan relief.
"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 bureau said.
In a Feb. 2 letter to Cordray, which was included with the agreement, ECMC Group chief executive David Hawn said borrowers receiving the debt relief will see an immediate 40% reduction in their principal balance.
"Today, we begin delivering on our promise to transform the Everest and WyoTech schools we have acquired into first-rate career colleges where success is measured not by how many students we enroll, but by how many students complete their programs and get fulfilling jobs when they graduate," Hawn said in a press release Tuesday. In a separate statement, he added that the deal provides "very significant relief to thousands of current Zenith and former Corinthian students from loans taken out through Corinthian's now defunct Genesis loan program."
But Stan Mortensen, Corinthian's executive vice president and general counsel, said while the sale was a positive outcome, the company continues to dispute the CFPB's charges.
"This transaction is in the best interests of our students, our schools and the communities we serve," Mortensen said in a statement. "We take very strong exception to today's unfounded and unproven charges by the Consumer Financial Protection Bureau and will continue to contest them in court."
ECMC Group also agreed to delete negative credit report information for borrowers hurt by the lending scheme. The company must also follow an agreement with the Department of Education to provide students with flexible withdrawal policies and be clear with borrowers about their job prospects.