SAN FRANCISCO (CBS SF) – California Attorney General Xavier Becerra announced in San Francisco Thursday that the state has reached a settlement of $67 million in loan forgiveness for 35,000 students who took out private loans to attend programs of the now-defunct Corinthian Colleges Inc.
The settlement was reached with Balboa Student Loan Trust, a Delaware-based company that took over some of the high-interest private loans students had taken to supplement their federal student loans.
Santa Ana-based Corinthian was once one of the largest for-profit education chains in the country, offering training in fields such as medical assistance, business and information technology.
It closed its schools and declared bankruptcy in 2015 amid allegations of fraudulent business and advertising practices.
Becerra, at a news conference at the State Building, called the company “a predatory for-profit school that intentionally targeted low-income, vulnerable individuals through deceptive and false advertising that misrepresented job placement rates and school programs, among other egregious misconduct.”
The settlement with Balboa was filed in Los Angeles Superior Court on Wednesday. It resolves a lawsuit state lawyers filed the same day, accusing Balboa of unfair business and debt collection practices.
Under the pact, Balboa will immediately halt all debt collection and forgive the remaining balance of each of the 34,971 private California student loans it holds. The combined balance is about $67 million.
Balboa will also repay all payments made by Californians since Aug. 1, 2017, for a total of more than $500,000, and will refund $84,000 in previous payments made by Californians who received what Becerra called “problematic” debt-collection notices.
The recipients will include 7,368 former students in the San Francisco Bay Area and 465 in the Monterey-Salinas area, Becerra said.
Balboa does not admit to any wrongdoing in the settlement. A lawyer for Balboa was not available for comment.
Last year, Becerra announced a similar settlement with another private loan holder, Aequitas Capital Management, which provided former Corinthian students in California with $51 million in debt relief.
The two settlements concern only the private loans students took out, which typically accounted for about 10 percent of tuition.
Other lawsuits have been filed concerning forgiveness by the U.S. Education Department of federal loans, which often paid the other 90 percent of tuition.
Federal rules require that schools whose students receive federal loans can obtain no more than 90 percent of their funding from U.S. loans and must receive the other 10 percent from other sources.
According to allegations in Becerra’s lawsuit on Wednesday and a federal lawsuit filed by the Consumer Finance Protection Bureau in 2015, Corinthian sought to achieve the private funding requirement by setting up a program called Genesis to facilitate private loans.
It allegedly set its tuition at a price that would require students to obtain private loans to supplement the federal loans.
Corinthian allegedly acted as a promoter, broker and debt collector for the private loans, which had higher interest than the federal loans, and did not tell students of its involvement.
In August 2014, Corinthian sold about 170,000 loan notes from the Genesis program with a face value of $505 million to a third party for $19 million, according to the CFPB lawsuit in federal court in Illinois.
Similarly, the lawsuit Becerra filed in Los Angeles on Wednesday alleges that in August 2014, “Corinthian sold virtually all of its Genesis loans to an unaffiliated third party, who in turn transferred the loans” at issue in the lawsuit to Balboa. Neither lawsuit identifies the third party.
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