Students who took out private loans while attending schools owned by the for-profit Corinthian Colleges Inc. will be eligible for 40% reductions in their loan balances.
The U.S. Consumer Financial Protection Bureau announced the private student loan relief program, totaling more than $480 million, as part of an ongoing lawsuit that branded Corinthian's lending programs an "illegal predatory lending scheme."
The consumer protection agency first filed suit against Corinthian in September, alleging that its schools pushed students into high-interest loans and harassed them into repaying debts while in school, sometimes preventing them from graduating. Nearly 60% of borrowers defaulted within three years, according to the suit.
Since then, Santa Ana-based Corinthian announced a deal in November to sell off 56 of its campuses to ECMC Group, a nonprofit entity that is mostly known for servicing student loans on behalf of the federal government.
The college company faced a severe cash crunch after the U.S. Department of Education withheld crucial federal student aid dollars last year, amid concerns the company had falsified job placement data.
As the deal was being finalized, ECMC wanted to be released from any potential liability from the Consumer Financial Protection Bureau suit. To grant relief from the suit, the CFPB required that ECMC work to provide student loan relief and promise not to offer similar private loan programs for at least seven years.
"We will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry," CFPB director Richard Cordray said in a statement.
The student loan relief will translate into a 40% reduction in loan balances for the private loans offered by Corinthian, known as the "Genesis loan" program. The relief will apply to all current and former Corinthian students who have outstanding private Genesis loan, regardless of whether the schools are being sold to ECMC.
Corinthian's Everest College and WyoTech campuses in California, along with its Heald College locations, are not part of the sale.
The consumer protection bureau's lawsuit against Corinthian is ongoing.
ECMC also pledged to work with credit reporting agencies to erase any record of the private loans on former students' credit histories, and to ensure that debt collectors can't sue for unpaid loans.
ECMC and Corinthian finalized the acquisition of the 56 schools Tuesday. ECMC has voluntarily hired an independent monitor that will report to the U.S. Department of Education, to ensure the new owners are appropriately advertising to students and accurately reporting job placement and completion rates.
ECMC Group, which will operate under the name Zenith Education Group, will reduce tuition for current Corinthian students by 20%. Students enrolled in programs found to have low job placement rates will have the option to transfer into another program or withdraw and receive a full refund.