Judge Orders Corinthian Colleges to Pay Student Loans


A court ruling has come down against Corinthian Colleges Inc., which no longer exists, requiring them to repay $531 million in student loans, which could begin a process that would see the government forgive hundreds of millions of dollars owed by former students of the for-profit chain.

According to a federal judge in Illinois, the company “engaged in deceptive practices” when they misled prospective students concerning their job outlook.

The Consumer Financial Protection Bureau argued that the school had encouraged students to take out private high-interest loans in order to enroll in its programs.  The company then made use of “illegal debt collection tactics” to collect on those loans while the students were still in school.  Thousands more took out federal student loans before the school suddenly shut down in 2014.

The company has been ordered by Judge Gary Feinerman of U.S. District Court for the Northern District of Illinois to pay back private loans taken out by former students who had attended colleges operating under the names Everest, WyoTech, and Heald.  However, the school has filed for bankruptcy protection, and because what little assets they had have already been given to lenders, previous students are unlikely to ever see their money handed back to them.

However, the ruling could make it possible for a basis on which the Department of Education could forgive the federal loans taken out by former students of Corinthian.  A special master was appointed by the agency earlier in the year who will oversee the process that former students will use to request loan forgiveness, writes Josh Mitchell for The Wall Street Journal.

The lawsuit had been filed against the school last year by the Consumer Financial Protection Bureau.

CFPB Director Richard Cordray said: “We all have much more work to do before current and past students who were hurt by Corinthian’s illegal practices can be made whole. We remain deeply concerned about risks facing student borrowers in the for-profit space and will continue to be vigilant in rooting out harmful practices.”

Molly Hensley-Clancy for Buzzfeed writes that former students and activists are using a student loan protection clause that had been unknown beforehand called “defense to repayment.”  The group is arguing that the federal government should be required to forgive the loans of students who attended Corinthian.  According to the clause, students “may assert, as a defense against collection of your loans, that the school did something wrong.”

The agency has already announced that loans will be forgiven for up to 40,000 students of Heald who owe a total of between $500 and $600 million.  Requests from former students of other Corinthian schools are currently being considered.

In all, 350,000 students are owed a total of close to $3.5 billion.

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