Corinthian Colleges, which promised a better career and financial help for studies, in reality typically gave students jobs that lasted just one day and awarded them private high-interest loans that were so toxic many of them ended up ruined financially, a federal government lawsuit filed on Tuesday alleges.
Corinthian is based in California, but runs its 10 Florida campuses out of Tampa and other colleges at sub-headquarters nearby. It is a publicly traded firm and one of America’s largest for-profit operators. It has more than 70,000 students, over 100 campuses spanning 26 states, and also operates in Canada.
Most of its income comes from student loans and federal grants. It receives $1.4 billion annually from the US taxpayer in the form of student aid.
In a Special Notice for Corinthian Students, the Consumer Financial Protection Bureau wrote:
“Today, we announced a lawsuit against for-profit college chain Corinthian Colleges, Inc. We allege that the company lured in tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services.”
“Our lawsuit also alleges that Corinthian used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.”
Corinthian Colleges responds
Corinthian Colleges responded to the lawsuit saying it strongly disputes the allegations, accusing the Consumer Financial Protection Bureau (CFPB) of wrongly disparaging the career services assistance it offers graduates, while at the same time mischaracterizing both the purpose and practices of its “Genesis” lending program.
Corinthian complains that it was not given the opportunity to respond to several of the allegations in the complaint, which is contrary to the normal process of the CFPB. It says thousands of Corinthian graduates get good, permanent jobs annually in the US.
Regarding the job prospects of students, Corinthian says of the CFPB:
“It (CFPB) cites isolated incidents at Corinthian’s 97 US campuses that violated company policy regarding job placement policies. CFPB is aware of these cases because Conrinthian identified the issues, took strong action to rectify them and self-reported them to the appropriate regulators and accreditors. It is deeply misleading to ignore the actions by Corinthian that brought these issues to light.”
Corinthian is currently winding down its operations. The US Department of Education told it to either sell off or close down its campuses within the next six months.
According to the federal government, Corinthian had admitted to falsifying attendance records, grades, and placement rates at several institutions.
Predatory lending scheme
Corinthian is accused of deceiving tens of thousands of students through an “illegal predatory lending scheme.” The complaint alleges that the college was involved in a widespread pattern of deception by advertising phony job placement rates, enrolling students in very high-interest private loans, and then chasing them for debt-repayments while they were still studying.
The CFPB is seeking relief for students who borrowed more than $568 million since July 2011.
CFPB’s director, Richard Cordray, says Corinthian “too often turned the American dream of higher education into an ongoing nightmare of financial despair.”
Kent Jenkins, a spokesman for the college, said the average interest rates for the students’ private loans are “well below market rates”. He quoted 9% interest as an average and added that the loan program is used by less than 40% of the student population. According to the complaint, interest rates reached double the amount quoted by Jenkins.