Regulators Sue Corinthian Colleges for Allegedly Harassing Low-Income Students

The Consumer Financial Protection Bureau is suing Corinthian Colleges, one of the largest operators of for-profit colleges in the U.S., on grounds that it deceived students and harassed them to collect on student loan debts. The CFPB, a federal government agency, charges (PDF) that Corinthian used false promises of employment prospects to lure students, induced them to take out predatory loans, and publicly humiliated them when they couldn’t pay.

“Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” said CFPB Director Richard Cordray in a statement.

Corinthian Colleges reached an agreement with the government in June to shut down or sell all of its 97 U.S.-based schools amid allegations of abusive financial practices. The California attorney general also sued the company for allegedly misleading students and falsifying job placement records.

Corinthian targeted students with “’low self-esteem’ who had ‘[f]ew people in their lives who care about them’ and who are ‘isolated,’ ‘stuck, unable to see and plan well for future’” according to internal company documents obtained by CFPB.

Most students at Corinthian came from poor or low-income backgrounds; 57 percent had household incomes of $19,000 or less in 2011. To pay for the unusually high cost of a for-profit education, students were encouraged to take on private loans in which the company had a stake, according to the suit.

The loans bore interest rates of nearly 15 percent in 2011, compared to around 6.8 percent for federal student loans. They also required students to start making payments toward the debt while they were in school. Students aren’t typically asked to start repaying federal loans or private loans until they finish their education.

Corinthian staff members used aggressive tactics to wring money out of their students, including “pulling students out of class, preventing students from attending and registering for class, and terminating students’ computer access.”

The suit says that Corinthian paid companies to employ its graduates at a rate of $2,000 per student and cooked its job placement records by counting one day of employment as a “career.” Students were promised extensive career counseling but instead received e-mails with links to Craigslist job postings, according to the suit.

A Corinthian spokesman said in a statement that the company strongly disputed the CFPB’s allegations, saying that fewer than 40 percent of its students took out the private loans flagged in the lawsuit. He also said the accusations regarding job placement falsification were “isolated incidents” that “violated company policy.”

This is the second major lawsuit the CFPB has brought against a for-profit college this year. In February, the agency sued ITT Educational Services for roping students into abusive private loan agreements.

The CFPB asked the court to compel Corinthian to provide debt relief to its students, who hold over $500 million in private student loans.

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