WEST JORDAN, UTAH (CN) – JP Morgan Chase helped an unaccredited online nursing college in constructing a house of lies meant to push tuition lending, say the students. The claims recapitulate the disaster unfolding on Wall Street, alleging an underlying fraud papered over by an avalanche of loan swapping, securitization and bankruptcy.
The class action claims Excelsior College participated in the fraud by lending its accreditation to the Academy of Nursing, and that JP Morgan Chase pushed the loans and touted the Academy while ignoring its accreditation problems.
Eleven named student plaintiffs and two plaintiffs who co-signed loans say the Academy was not accredited, could not award nursing degrees despite promising that it could, and that it often did not even use accredited teachers, but “students who had just completed the classes.” And some of those “teachers” had not even passed the courses they were teaching, the complaint states.
The whole scheme was a way to push loans, according to the complaint.
In a final irony, defendant The Educational Resource Institute (TERI), which was created to guarantee student loans that are not guaranteed by the government, filed for bankruptcy itself in April this year. This came after “the financial community lobbied successfully for federal legislation that prevents students who borrow from private lenders using TERI loans from extinguishing the TERI loan in bankruptcy.”
The plaintiffs therefore need permission from the bankruptcy to sue TERI. The complaint adds that TERI, of Boston, is an affiliate of defendant First Marblehead. “TERI became such a fixture in the non-federally guaranteed student loan program that loans it guaranteed have become known as ‘TERI loans.'”
The State of Utah shut down the Academy of Nursing in February 2005, “due to many violations of state law,” the complaint states.
Also sued is American Education Services (AES), which services the loans originated by JP Morgan, formerly known as Bank One.
AES also claims to own the loans, “under convoluted legal arrangement that have become commonplace in this age of packaging and selling ‘securitized loans.’ … (S)uch an arrangement allows AES to circumvent fair debt collection practices under state and federal statutory schemes, and to pursue debt collection practices which would be illegal if pursued by a third-party debt collector.”
Defendant Excelsior College, another Internet college, was “affiliated with” the Academy of Nursing, though the relationship was murky, the complaint states. “The Academy of Nursing was not an accredited institution, and could not award nursing degrees to students. It relied exclusively on the distance and online course of study created by Excelsior College, as well as Excelsior’s accreditation.
“The Academy of Nursing was severely underfunded. Its association with Excelsior College was ill-defined. At various times, the Academy’s course of study did not coincide with that of Excelsior College. Textbooks used by the Academy were not approved by Excelsior. Many of the Academy of Nursing’s instructors were not trained as teachers. Some were simply students who had just completed the classes. Based on information and belief, some instructors had failed to pass the classes they were teaching. The Academy’s financing and operation, including but not limited to its practice of taking tuition from students for multiple years in advance, violated Utah law. None of these facts were known to the students.
“On several occasions Excelsior College disavowed its affiliation with the Academy. Students were often given conflicting stories of the colleges’ affiliation, of their enrollment in Excelsior, and of the accepted courses of study.”
The complaint adds: “Student loan checks from Bank One were most often made payable jointly to the student borrower and Excelsior College. Excelsior College confirmed enrollment of several of the named plaintiffs with Bank One, AES and others, as requested … Excelsior’s nursing program is accredited with the National League for Nursing Accrediting Commission.”
Bank One allegedly sold the students’ loans to First Marblehead, whose finances were “severely negatively impacted by TERI’s bankruptcy.” Defendant JPMorganChase is successor to Bank One, having merged with it in 2004.
Defendant “National Collegiate Trust is one of more trusts create to purchase the TERI loans of the plaintiffs and other students similarly situated. In a typical transaction, the trust will sell notes to investors, and the trust will use the proceeds from the notes to purchase groups of TERI guaranteed student loans. The trust enters into an administration agreement with First Marblehead and a servicing agreement with AES.”
And defendant Protagoras Corp., whose charter expired in 2005, was an affiliate of the Academy of Nursing, according to the complaint.
The students want their money back, their debts canceled, damages for fraud and breach of contract, costs and fees. They are represented by E. Jay Sheen.