Ex-Corinthian Colleges students could get $183M in loan relief from proposed settlement

(Photo: 2015 photo by Christine Armario, AP)

An estimated 41,000 student borrowers harmed by a predatory lending scheme at the now-defunct Corinthian Colleges could soon be eligible to share $183.3 million in loan forgiveness and reduction.

The court receiver winding down Aequitas Capital Management, a private equity company that purchased or funded about $230 million of the private "Genesis" loans at Corinthian, could authorize the relief if a federal judge approves the settlement proposed Thursday by the Consumer Financial Protection Bureau.

"Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare," Richard Cordray, director of the consumer agency, said in a formal statement. He added that the proposed agreement would "bring justice and relief to the borrowers still saddled with expensive student loan debt."

Suit: Corinthian Colleges victimized students

Once one of the nation's largest career school chains, Corinthian collapsed in 2014 and closed the following year amid charges of falsified graduation records and job-placement success. Sealing the chain's doom, the U.S. Department of Education cut off Corinthian's access to federal aid and the government hit the schools with a $30 million fine.

The shutdown left thousands of students, many without neither degrees nor jobs, saddled with heavy student loans.

The consumer agency alleged that Aequitas plotted with Corinthian to make it seem as if the college chain received outside revenue in the form of the Genesis loans. In reality, Corinthian paid the private equity company to support the loan program.

Corinthian Colleges shuts remaining 28 campuses

Labeling the financial maneuver a charade, the consumer agency said the alleged scheme falsely made it appear that Corinthian complied with a government rule requiring that for-profit schools receive at least 10% of their funding from other sources in order to qualify for federal funds.

The Securities and Exchange Commission placed Aequitas and related entities into court receivership in 2016 for defrauding investors in an alleged financial scheme that violated federal securities laws as the company faced collapse.

If the proposed settlement wins approval, the consumer agency said Aequitas and the related entities would be required to:

• Forgive Genesis student loans in connection with certain closed schools, forgiving all outstanding balances for borrowers who meet certain eligibility requirements.
• Forgive all outstanding balances for any Genesis loans it owns that were 270 days or more past due as of March 31, 2017.
• Reduce the principal amount owed on other Genesis loans by 55%.

If the court approves the settlement, eligible borrowers will be notified within 90 days of the decision, the consumer agency said.

Originally published on https://www.usatoday.com/story/money/2017/08/17/ex-corinthian-colleges-students-could-get-183-m-loan-relief-proposed-settlement/578136001/