Bridgepoint Education, Inc., a for-profit chain of colleges, is about to return $23.5 million to students because of claims that the organization tricked them into applying for and receiving loans that cost more than the students were told they would cost. The settlement was made this week with the Consumer Financial Protection Bureau (CFPB).
Bridgepoint, a San Diego-based company, will also be paying an $8 million civil penalty, according to Aruna Viswanatha of The Wall Street Journal. This order is occurring only one week after another for-profit school, ITT Technical Institute, declared it would be closing over 130 campuses following the government's ban on allowing enrollment of students who were receiving federal aid.
The Bureau explained that Bridgepoint told incoming pupils that monthly payments on loans were normally around $25, even though CFPB informed the school officials that the number was not "realistic."
For students who had already repaid their loans, $5 million is included and $18.5 million is being used to satisfy outstanding debt. Bridgepoint Education, Inc. operates the University of the Rockies and Ashford University.
A federal judge ordered a payment from Corinthian Colleges, Inc. of $531 million to former students and for reimbursement of student loans made by private lenders. CFPB sued the company, charging it with dishonest activities.
In August, Wells Fargo Bank refunded $410,000 to student borrowers and paid a $3.6 million penalty due to alleged illegal loan practices.
And in 2014, Bridgepoint and its Ashford University in Clinton, Iowa, paid $7.25 million to settle a suit from the Iowa attorney general's office that accused the company of lying to students to encourage them to enroll in their school.
Katie Lobosco, writing for CNN, quoted CFPB Director Richard Cordray:
"Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school."
Bridgepoint now has 45 days to create a plan for refunding the money, and borrowers do not have to take any action to receive their reimbursement. Bridgepoint officials say they acted in "good faith" and want to fulfill their agreement with CFPB so the organization can move on and focus on educating students.
Apparently, for-profit schools have for years run their private loan programs to help students receive an education. But instead of assisting students, the companies have often circumvented government regulations. The US government rules say that for-profit colleges can only get 90% of their income from federal student loans, a policy aimed at keeping for-profit colleges from relying on taxpayer money. These colleges often cater to students who are unable to afford any amount of tuition.
Private loans are one way the young people can get the college degree they are seeking. These loans were the 10%+ of additional funding colleges needed to lower their ratio.
Bridgepoint is also being investigated by the Justice Department because it believes that the company may have exaggerated the amount of money it obtained from private programs, reports BuzzFeed's Molly Hensley.
"Together with our state partners, we will continue to be vigilant in rooting out illegal practices facing student borrowers in the for-profit space."
The Justice Department explains that Bridgepoint violated the "90/10 rule," which bars for-profit colleges from receiving over 90% of their revenue from federally-backed student loans, says Mike Freeman of The San Diego Union-Tribune.
But Bridgepoint has other problems as well, as do many other for-profit colleges. The schools have high dropout rates, increased competition from non-profit schools, and fewer students enrolling in online colleges after 2011.