The Consumer Financial Protection Bureau reached a tentative $183.5 million settlement Thursday with the court-appointed receiver of an Oregon private equity firm that could provide debt relief to 41,000 students of the bankrupt Corinthian Colleges.
The CFPB and 13 state attorneys general reached a proposed settlement with the receiver of Aequitas Capital Management, based in Lake Oswego, Wash.
The CFPB alleges that Aequitas and Corinthian Colleges plotted together to make high-cost private loans so it would appear the school met federal student aid requirements.
“Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare,” CFPB Director Richard Cordray said in a statement. “Today’s action marks another step by the Bureau to bring justice and relief to the borrowers still saddled with expensive student loan debt. We will continue to address the illegal lending practices of for-profit colleges and those who enable them.”
The CFPB sued Corinthian Colleges in September 2014 and obtained a $530 million default judgment against the company, which was unable to pay because it had dissolved and had limited assets.
Corinthian Colleges went bankrupt in 2014. Last year, the Securities and Exchange Commission sued Aequitas and three top executives, accusing the company of running a Ponzi scheme and defrauding 1,500 investors.
Aequitas had purchased or funded roughly $230 million of Corinthian Colleges' private loans. A receiver was appointed to wind down Aequitas and distribute its remaining assets.
The CFPB alleges Corinthian and Aequitas engaged in a scheme to meet a federal law that requires for-profit schools obtain at least 10% of their revenue from other sources in order to qualify for federal student loan dollars.
Corinthian created a loan program called Genesis and enlisted Aequitas to purchase the loans so it would appear Aequitas was a private revenue source. The CFPB alleges that both companies knew the students could not repay the loans and would default.
Under the scheme, the defaults would not affect Aequitas because Corinthian was committed to buying back all delinquent loans.
The proposed settlement, filed in U.S. District Court for the District of Oregon, would require Aequitas to forgive all outstanding balances on Genesis loans for borrowers enrolled in April 2015 who did not complete their coursework or graduate.
In addition, borrowers who withdrew from Corinthian on or after June 1, 2014, and those who had their loans sold to Zenith Education Group, another for-profit college that subsequently closed, also would be eligible for relief.
Aequitas also would be required to forgive all outstanding balances for any Genesis loans in default that were 270 days or more past due as of March 31, 2017.
The company would also have to cut the principal balance by 55% for all other Genesis loans it owned, and would have to forgive any accrued and unpaid interest, fees and charges that were 30 or more days past due as of March 31, 2017.
Borrowers could opt to have their monthly payments lowered after the remaining loan balance is reduced by 55%.