Uncle Sam Stomps on Corinthian Colleges

CHICAGO (CN) - Much-sued Corinthian Colleges misrepresented itself to induce students to take out $569 million in student loans, then used abusive collection practices when they defaulted, as many of them did, the Consumer Financial Protection Bureau claims in court.

Corinthian Colleges has been sued more than 130 times this year alone, according to the Courthouse News database.

The chain college, which also operates under the name Everest College, agreed with the U.S. Department of Education in July to sell off most of its campuses and close the other ones, the CFPB says in the complaint.

"The Department placed Corinthian on heightened oversight after Corinthian failed to provide the Department with satisfactory information regarding Corinthian's job placement data," the complaint states.

Corinthian also agreed to submit to an independent monitor, who has been appointed, and agreed to establish a reserve fund of at least $30 million "exclusively for student refunds," but it has not done so yet, the Bureau claims.

The 39-page lawsuit recapitulates complaints that have been filed against Corinthian Colleges for years.

"Corinthian's business model is predicated on convincing consumers to obtain student financial aid to pay the high cost of tuition to enroll in its programs," the lawsuit states. "Because most of its prospective students could not afford to pay tuition out-of-pocket, from July 2011 through March 2014, students took out nearly 130,000 private student loans to pay Corinthian's tuition and fees. The total outstanding balance of these loans is in excess of $568.7 million."

Among the chain school's failings, the Bureau says, is that "Corinthian falsely inflated its job placement statistics to induce students to enroll and to maintain its accreditation. Among other deceptive tactics, Corinthian defined a 'placement' as any job that lasted one day, with the promise of a second day; paid employers to temporarily hire graduates from Corinthian schools; falsified placement information; and provided meager career services, and virtually no career services to graduates that Corinthian could already record as being placed."

The lawsuit takes special aim at so-called Genesis loans, which Corinthian pushed by claiming they were made by an independent third party in which Corinthian did not have an interest. But it did have in interest in the loans, the Bureau says.

"Corinthian took aggressive action to collect in-school payments on the Genesis loans as soon as they become past due, and Corinthian's campus staff members received bonuses based in part on their success in collecting such past-due payments from students. Corinthian's efforts to collect such payments included pulling students out of class, preventing students from attending and registering for class, and terminating students' computer access.

"Despite its aggressive collection efforts, to date, more than 60 percent of students with a Genesis loan have defaulted on that loan within three years.

"When Corinthian marketed, promoted, and facilitated these student loans, Corinthian expected that most student-borrowers would default," the complaint states.

Federal law requires that no more than 90 percent of a college's revenue may come from federal funding. So "Every Genesis loan dollar that Corinthian induced its students to borrow, in effect, allowed Corinthian to receive up to an additional nine dollars in Title IV aid," the complaint states. As a result, Corinthian had strong financial incentives to induce its students into taking out Genesis loans, even given students borrowers' high default rates.

"Because Corinthian deceptively and unfairly induced students to incur significant debt, and because Corinthian took illegal aggressive action to collect on that debt, the Bureau brings this action to stop these practices and make Corinthian's consumers whole."

After agreeing to shut down, Corinthian sold "virtually all of the Genesis loan notes that it owned" - 170,000 loans, with a face value of $505 million - for $19 million, the Bureau says.

It seeks rescission of all Genesis and EducationPlus loans originated since July 21, 2011, disgorgement, restitution, an injunction and damages for unfair and deceptive trade and debt collection violations.

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