California Attorney General Xavier Becerra (center) speaks at a June 14 press conference announcing that his office has secured 100-percent loan-forgiveness for former Corinthian College students.
“Corinthian intentionally targeted low-income, vulnerable individuals, folks like me who were first in their family to go to university or college,” Becerra said at a June 14 press conference. “They did these things through deceptive and false advertising.”
He said that while the California Department of Justice (DOJ) has already obtained millions of dollars from Corinthian on behalf of these students, it has now settled with Balboa Student Loan Trust, which holds Corinthian student loans, for an additional $67 million.
Balboa manages loans for nearly 35,000 former Corinthian students in California, with about 15,000 in the Los Angeles area.
“Our investigation found that Balboa engaged in illegal debt-collection practices,” Becerra said. “That included erroneously mailing overdue notices to some of these California student borrowers.”
He said the overdue notices falsely told students they could be subject to litigation if they didn’t pay.
The settlement requires Balboa to immediately halt collections, forgive 100 percent of these students’ debt and refund more than $500,000 in loan payments it received since August 2017. Balboa must further reverse all negative credit reporting on those loans and not report the debt-relief to borrowers as income subject to taxation.
The settlement document, dated June 13, states that loans must be cancelled within 60 days, including principal, interest and fees.
Becerra said that within the next few weeks, students will receive a letter from Balboa informing them that their loans have been fully forgiven.
“It’s our hope that this will give those students a bit of comfort, some peace of mind, when they get this letter,” he said. “We also hope that it’s a welcome change from getting a collection notice for a degree that they couldn’t use.”
Fraudulent practices
A statement from Becerra’s office describes the now-defunct Corinthian as a “predatory, for-profit school” that, among other things, misrepresented job-placement rates and school programs.
Becerra’s office had filed a lawsuit against the college in 2013, ultimately obtaining a $1.1-billion judgment against it.
The DOJ then opened a formal investigation into Balboa in 2017, after learning that the company may have engaged in debt-collection misconduct with respect to some of its Corinthian loans. That investigation led to last week’s settlement.
The complaint, on behalf of the People of the State of California, describes Corinthian’s “fraudulent” business model as relying on constant enrollment of new students, almost all of whom needed federal financial aid and private loans to pay its high tuition and fees.
The complaint further accuses Corinthian of steering students into high-interest, private student-loans under its “genesis loan program,” which it hid behind in order to seem compliant with federal law requiring for-profit schools to receive at least 10 percent of revenue from a source other than federal financial aid.
Corinthian then sold those loans to a third party, which transferred them to Balboa. The complaint accuses Balboa of attempting to collect the unpaid loan balances by threatening borrowers with legal action, despite a debt-collection agreement barring it from doing so.
Balboa thus violated the Unfair Competition Law, the Business and Professions Code and the Rosenthal Fair Debt Collection Practices Act, according to the complaint.
Becerra, himself the son of immigrants and a first-generation college-goer, said institutions such as Corinthian and Balboa take advantage of those seeking a better life.
“All too often, unfortunately, there are unscrupulous players who engage in unscrupulous practices at some of our post-secondary institutions,” he said. “There are lenders who are in cahoots who do the same thing. They turn what should be an American dream into a nightmare.”
Federal limits
Becerra also said the DOJ filed suit against U.S. Secretary of Education Betsy DeVos last December for failing to process debt-relief claims of Corinthian students who had taken out federal loans.
“Today, once again, I call for Secretary DeVos to do her job– do the right thing– for these former Corinthian College students,” Becerra said.
To further comment on this, Becerra introduced at the news conference Debbie Cochrane, vice president of the Institute for College Access and Success, an organization working to ensure students have an affordable path to a college education.
“Federal law provides federal loan borrowers to get their loans discharged if their school closes or mistreats them,” Cochrane said. “No such protections exist for private loans.”
She noted, however, that the current federal administration is currently revising two rules instated under the Obama administration protecting student borrowers– the Gainful Employment Rule and the Borrower Defense Rule.
“These rules have been delayed and undercut by the Trump administration and are now being rewritten” Cochrane said, adding that they are expected to be released shortly and would substantially reduce student protections.
“Without strong rules, for-profit colleges will once again be free to overcharge students for substandard educations that won’t deliver,” Cochrane said.
In light of this, Cochrane underscored the important role of states in protecting students but said that even this is under threat.
“The U.S. Department of Education and some in Congress seek to restrict the authority of states,” she said, noting that new rules would even limit states from protecting students against predatory colleges in other states.
Cochrane noted that Corinthian Colleges– also known as Everest College, Everest University, Heald College and WyoTech– is not the only company that engages in such practices, citing the now-defunct ITT Technical Institute as another example.
“While Corinthian Colleges may be the most notorious of for-profit college companies, it is not alone in pushing students towards expensive, private loans they know they will not be able to repay,” she said.
Cochrane warned that such private student-loans are not only costlier than federal loans but also riskier, akin to using a credit card.
“Private-loan borrowers are not entitled to the same types of forbearances and deferments for borrowers facing short-term financial struggles,” she said, adding that such loans are also ineligible for longer-term payment options based on how much borrowers earn rather than how much they owe.
Despite impending federal limitations, Becerra emphasized his department’s commitment to protecting California students “cheated out of a college education.”
“At the California Department of Justice,” he said, “we will continue to hold accountable those who would prey on America’s college students, their parents and their American dreams.”
