September 16, 2014

Corinthian Colleges is being sued by the Consumer Financial Protection Bureau (CFPB) for allegedly luring thousands of students into taking out private loans then using illegal collection practices to collect payments.

The Bureau is seeking debt relief for students who attended or are currently attending the for-profit college system. Between July 2011 and March 2014, the CFPB estimates that students took out about 130,000 student loans with an outstanding balance in excess of $569 million. The interest rates on these loans were higher - in some cases double - than those of federal loans.

In its suit, the CFPB is seeking reimbursement from Corinthian for all student loans made since July 21, 2011, regardless of their payment status.

The company operates schools under the names Everest, Heald, and WyoTech. As of last March, the company had approximately 74,000 students. The CFPB alleges that the company targeted low-income students who are often the first in their families to go to college and enticed them with promises of well-paying careers after graduation.

Those job placement statistics, the CFPB says, were inflated. Corinthian counted a career as any job that lasted one day with a promise of a second. Sometimes schools paid employers to hire students for temporary positions. Students were not made aware that their jobs would be temporary or that the employer was receiving compensation for their placement. Corinthian also allegedly created fake employers and listed graduates as working with those companies.

Once enrolled, students were forced to take out hefty private loans through the college and debt collection practices started almost immediately. Unlike federal loans that don't begin collecting payments until a student is done with school, students were required to make payments while they were still enrolled.

According to the CFPB 60 percent of students defaulted on their private loans, but the colleges never disclosed this information to borrowers.

Students reported to the CFPB that the school's financial aid officers would often pull students out of class to collect payments. The school would also prohibit students from registering for classes, getting books, or using computers until their account was up to date.  In many cases, students said in the complaint, Corinthian Colleges would withhold diplomas and not allow students to participate in graduation services or graduate at all.

When students did finally graduate, they found staff in the career services department hard to contact or got little support. The department often distributed easily obtained job listings from websites like Craigslist.

History of Trouble

This isn't the first time Corinthian Colleges has gotten into hot water with a federal agency.

The U.S. Department of Education delayed Corinthian's access to federal aid dollars in June because of reports of malfeasance. Corinthian has been scaling down its operations as part of an agreement with the Department of Education. Corinthian continues to enroll new students.

The full complaint can be found on the CFPB website.

The CFPB Notice for Current and Former Corinthian Students can be found here.