Corinthian Colleges (Corinthian) announced on April 26 that it would cease operations at its remaining physical campuses. This announcement refers to the 30 or so physical campuses that Corinthian continued to operate subsequent to the sale of more than 50 of its campuses to ECMC Group last fall. The campuses sold to ECMC Group are not impacted by the closure. Prior to the sale, Corinthian had more than 100 campuses across the country, operating under the names Heald, Everest and WyoTech. These schools enrolled 72,000 students who received $1.4 billion in federal financial aid annually.
The closure comes less than two weeks after the U.S. Department of Education announced it would fine the school $30 million after the agency determined Corinthian misled students about job placement opportunities and loan repayment rates. This was just one of several setbacks for Corinthian. The Consumer Financial Protection Bureau (CFPB) also brought an action against Corinthian in U.S. District Court for the Northern District of Illinois (Case No. 14-7194). That litigation is ongoing, with an answer from Corinthian due May 20, and the allegations raise the same issues addressed by the U.S. Department of Education:Corinthian misrepresented job placement data to prospective students to induce enrollment. Corinthian encouraged students to take out private loans to supplement federal aid because federal law requires that no more than 90 percent of an institution’s revenue come from federal financial aid provided under Title IV of the Higher Education Act of 1965, and students could not afford the uncovered portion of their tuition. Corinthian expected that many students would default on both types of loans. After attending a Corinthian college, many students could not find employment in their chosen field. Consequently, many Corinthian students did in fact default on their student loans.
The CFPB also has begun to provide relief for Corinthian’s students. On May 6, the CFPB published guidance for students enrolled at the recently closed campuses. For students on federal aid, the CFPB advised they discharge loans by applying for a closed school discharge. For students with private loans, the CFPB encouraged students to contact their loan servicers to see what they would allow and to submit a complaint online if necessary.
The CFPB also held a field hearing in Milwaukee on student debt on Thursday, May 14. CFPB Director Richard Cordray spoke, and the hearing featured testimony from consumer groups, industry representatives, and members of the public. The CFPB indicated it would be taking a closer look at various practices associated with student loan servicing, as other regulators and analysts have grown increasingly concerned about the vast amount of non-dischargeable debt in the economy. Private and federal student loan debt totals more than $1.2 trillion, and the loans often are not serviced by lenders but by separate servicing companies that process monthly payments, assist with modified repayment options, and perform other tasks.
At that May 14 field hearing, the CFPB unveiled its newest Request for Information (RFI). In the RFI, the CFPB provided an overview of the student loan market and problems experienced by consumers when repaying student debt before identifying a series of questions related to student loan servicing for which the CFPB seeks input. The specific issues for which the CFPB is seeking input include the following:Common industry practices that impact student loan repayment The applicability of consumer protections from other consumer financial product markets (including protections for consumers with mortgages and credit cards) The impact of limited availability of data about student loan servicing and student loan repayment on borrowers
According to the CFPB, it will be working with the Department of Education and the Department of the Treasury to identify initiatives that strengthen student loan servicing. Feedback received in response to the RFI will assist market participants and policymakers in developing options to improve borrower service, reduce defaults, establish best practices, assess consumer protections, and spur innovation.