Students who took out private loans issued by embattled for-profit Corinthian Colleges Inc. will have a significant portion of their debt forgiven as the result of an ongoing lawsuit between the company and the Consumer Financial Protection Bureau (CFPB), the Los Angeles Times reports.
Details of the agreement
The debt relief covers so-called Genesis loans, which were privately issued by the company to cover expenses not covered by federal financial aid. In total, $480 million will be returned to borrowers, and each individual student is eligible to have their debt reduced by 40%.
Senators request debt forgiveness for Corinthian students
Corinthian recently sold a significant portion of its campuses to ECMC Group, a nonprofit that helps the federal government collect student loans. The sale was spurred by financial difficulties for the company last year, following a decision by the federal government to suspend Corinthian's eligibility for financial aid over falsified job-placement data.
Later, the CFPB filed suit, alleging that Corinthian pressured students into taking out high-interest loans, and then aggressively pursued payment while they were still enrolled—to the detriment of their studies. CFPB says 60% of Corinthian borrowers defaulted within three years.
For-profit's proposed sale to credit management firm worries consumer advocates
ECMC agreed to the debt relief program, in part, because they wanted to be shielded from financial liability related to the ongoing lawsuit against Corinthian. In addition to loan forgiveness, ECMC agreed to work with credit reporting agencies to limit the effects Genesis loans will have on students' credit histories, and will reduce current student's tuition by 20%.
Debt forgiveness will apply to any Corinthian students with outstanding private loans regardless of whether the campus they attended is being sold to ECMC.
CFPB director Richard Cordray says in a statement "we will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry" (Kirkham, Los Angeles Times, 1/2).
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