CFPB Seeks $183.3 Million in Debt Relief for 41,000 Private Student Loan Borrowers
The CFPB's office in Washington D.C. The bureau has filed a complaint and proposed settlement regarding Aequitas Capital Management.
On August 17th, the Consumer Financial Protection Bureau (CFPB) filed a complaint and proposed settlement that, if approved, would put 41,000 student loan borrowers in line to have their student loans forgiven.
The proposed settlement and complaint were both filed against Aequitas Capital Management, Inc. who the CFPB is accusing of working with the Corinthian Colleges in a predatory lending scheme. According to the CFPB’s press release, the bureau is seeking $183.3 million in settlement money.
In their complaint, the CFPB claims that Aequitas collaborated with Corinthian to hand out ultra-expensive private student loans to borrowers attending the for-profit Corinthian Colleges. This was done as a way to show Corinthian was bringing in enough outside revenue to become eligible for federal financial aid money.
The educational loans, which were funded by Aequitas and distributed amongst Corinthian students, were so high-priced that both Aequitas and Corinthian knew they could not be repaid. Working with the CFPB, the attorneys general of several other states have also proposed settlements to Aequitas.
Richard Cordray, Director of the CFPB, issued the following statement: “Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare. Today’s action marks another step by the Bureau to bring justice and relief to the borrowers still saddled with expensive student loan debt.”
Aequitas, which is based in Lake Oswego, Oregon, purchased or bankrolled roughly $230 million in private student loans on behalf of Corinthian Colleges. These educational loans were dubbed “Genesis loans.” Attached to the private student loans were abnormally high interest and default rates that made repayment of these loans nearly impossible for Corinthian students.
The CFPB claims that many of the private student loans featured interest rates as high as 18 percent.
The high interest and default rates aided in Corinthian’s goal to remain eligible to receive federal financial aid. One federal regulation, known as the 90/10 rule, requires that for-profit colleges cannot have more than 90 percent of their revenue derive from federal financial aid. To fulfil this requirement, Corinthian raised tuition beyond what federal student loans could cover so that students were forced to turn to the private market. Many of the students turned to Corinthian’s Genesis loans which is where the scheme between Aequitas and Corinthian comes into play.
Since 2011, Aequitas was purchasing student loans from the Genesis program and also started funding new loans through the Genesis loan program. Corinthian would buy back any loans that were more than 90 days delinquent while Aequitas was able to solely collect on the high interest loans that were performing quite lucratively.
According to the CFPB, the Genesis loan program featured default rates between 50 and 70 percent, so Corinthian was taking advantage of federal financial aid money while borrowers were failing in repayment at considerable rates.
If the settlement deal is approved, Aequitas would be forced to forgive all of the student loans of Corinthian students who did not graduate or finish their coursework before the school closed in April of 2015. Additionally, any students who withdrew from Corinthian on or after July 1, 2014 would be able to qualify for forgiveness. Any student loan borrowers who were involved with the Genesis program and more than 270 days past due on their loans could also be up for forgiveness. If approved, Aequitas would also be forced to cut the principal on all Genesis student loans still on their books by as much as 55 percent.
For Corinthian Colleges, which abruptly closed its doors in April of 2015, this story marks more negative press. After the Department of Education decided that Corinthian misrepresented employment success among graduates, thousands of students were informed that they may be eligible for student loan forgiveness. For example, LendEDU reported that New York Attorney General Eric Schneiderman began informing nearly 3,000 New York residents who attended a Corinthian campus that they could be up for loan forgiveness.
Image Copyright © Ted Eytan