WASHINGTON (AP) — A federal regulator says Corinthian College students will be forgiven a total of $480 million in loans because the for-profit school used "bogus" job prospects to persuade them to pay tuition with expensive private loans.
The Consumer Financial Protection Bureau says tens of thousands of students received the loans, though it's unclear how many will benefit from the forgiveness. More than 60 percent of Corinthian students with those loans defaulted within three years after being subject to interest rates that were roughly twice the rates for federal loans.
"These consumers were lured into high-cost loans destined to default and then targeted with aggressive debt collection tactics," said CFPB Director Richard Cordray.
He said the loan forgiveness should help current and former students.
The troubled loans led the CFPB to file suit in September against Corinthian, which has operated a network of campuses under different names around the United States and Canada. The debt forgiveness deal announced Tuesday releases the new owners of Corinthian's Everest and WyoTech campuses, ECMC Group, from potential liabilities for the "alleged illegal activity."
With the deal in place, ECMC Group finalized its acquisition of more than 50 campuses formerly run by Corinthian that enroll nearly 30,000 students.
"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," said David Hawn, president and CEO of ECMC Group, based in Oakdale, Minnesota.
The CFPB and the federal Education Department worked with the new owner to give eligible students an immediate 40 percent reduction on their outstanding private student loans and removed negative information from their credit reports. ECMC Group will also refrain from operating a private student loan program for seven years.
Still, the ECMC Group takeover has raised concerns among some college education advocacy organizations. The agreement provides no relief for Corinthian students with federal loans, besides giving ECMC Group — a student debt collection agency — responsibility for running a college, said Pauline Abernathy of the nonprofit Institute for College Access & Success.
"ECMC programs will still cost many times more than higher-quality programs available at existing colleges and include many of Corinthian's worst-performing programs, some with default rates over 30 percent and graduates earning less than $17,000 per year," Abernathy said in a statement.
The CFPB intends to provide full relief to Corinthian borrowers who relied on the private loans.
Regulators have cracked down on for-profit colleges like Corinthian in recent years. The Obama administration announced in October a rule that would require career training programs to show that students can earn enough money after graduation to pay off their loans.
The CFPB says Corinthian charged as much as $75,000 for a bachelor's degree and pushed students into private loans with interest rates of roughly 15 percent.