MADIGAN: SETTLEMENT WITH DEFUNCT HEDGE FUND WILL PROVIDE MILLIONS IN RELIEF FOR FORMER STUDENTS OF CORINTHIAN COLLEGES
Madigan, CFPB & 12 Other Attorneys General Reach Settlement That Will Cancel Student Loan Debt that Originated with Deceptive Loan Scheme
Chicago — Attorney General Lisa Madigan, along with the Consumer Financial Protection Bureau (CFPB) and 12 other attorneys general, today reached a proposed settlement with Aequitas over allegations that the hedge fund was involved in a fraudulent scheme to lure students to borrow money to attend for-profit school Corinthian Colleges Inc. (Corinthian). The settlement provides over $11.6 million in debt relief for Illinoisans and is part of a broader agreement worth $192 million for former Corinthian students across the country.
Madigan’s investigation into Aequitas revealed it engaged in a fraudulent scheme with the now-defunct Corinthian that saddled students with thousands of dollars in private student loan debt they could not afford to repay. The scheme enabled Corinthian, which owned and operated seven Everest College campuses in Illinois, to meet a federal requirement that for-profit schools must obtain at least 10 percent of their income from sources other than the federal government. By meeting this requirement, Corinthian was able to rake in billions of dollars in federal student loans. The private loans offered by Aequitas were extremely expensive, and borrowers were never told that 50 to 70 percent of the loans defaulted.
Madigan, the CFPB and the other attorneys general allege Aequitas bought private loans from third-party originators, collected payments until borrowers fell behind, and then sold the loans to Corinthian in order to make a profit. After Corinthian could no longer make payments to Aequitas, the hedge fund was left holding a large inventory of loans that students could not repay and was subsequently sued by the SEC as a Ponzi scheme. Aequitas failed in 2016 and was taken into SEC receivership.
“These were sham loans used by for-profit schools and lenders to access federal taxpayer dollars to fund programs that did nothing to help students get ahead,” Madigan said. “Today’s settlement will provide refunds to many Illinois students, and I will continue to fight for those who were taken advantage of by for-profit schools.”
Under the settlement, student loan debt held by the SEC receiver will be canceled, and more than 2,800 Illinois students will be eligible for $11.6 million. Of those students, more than 70 percent will have 100 percent of their loans held by the receiver canceled.
After intense scrutiny by various government entities, Corinthian Colleges abruptly ceased operations in 2015. Madigan’s investigation into Corinthian revealed widespread misrepresentations made to prospective students, supporting the Department of Education’s findings that Corinthian made systemic misrepresentations between 2010 and 2014 about post-graduation employment rates for certain programs at its campuses.
Attorneys general from the following states joined Madigan in participating in today’s settlement: California, Colorado, Connecticut, Florida, Iowa, Kentucky, Maryland, New York, Oregon, Pennsylvania, Texas and Washington.
Attorney General Madigan has investigated numerous for-profit schools for fraud and repeatedly called on the Department of Education to immediately forgive federal loans for students who were victims of fraud at the hands of for-profit schools.
In addition, Madigan and 18 other attorneys general recently sued the U.S. Department of Education and Secretary Betsy DeVos for unlawfully delaying updates to the borrower defense to repayment rule. Also, in June, Madigan led a coalition of attorneys general and other state officials demanding the Department of Education stop delaying its program to cancel federal student loans for thousands of Illinois students victimized by predatory for-profit colleges, including Corinthian. In a letter sent to Secretary DeVos, Madigan urged the Department to review the mounting applications and work to forgive loans already approved for forgiveness.
Madigan created a Student Loan Helpline to provide borrowers with free information and resources about repayment options and avoiding default. Borrowers can also call the Helpline to file a complaint about loan servicing. The Helpline is (800) 455-2456 (TTY: 1-800-964-3013). More information can also be found on her website.