Bankrupt For-Profit School Hit With $500M Lawsuit
A soon-be-defunct for-profit college has been slapped with a half-billion dollar lawsuit from the Consumer Financial Protection Bureau (CFPB) over its business practices.
The lawsuit accuses Corinthian Colleges, Inc., which once had tens of thousands of students scattered across 107 campuses around the country, of a bevy of deceptive and exploitative business practices that lured students into taking out loans they would later be unable to repay.
Most accusations revolve around the company allegedly falsifying its job statistics in order t0 make graduates appear more successful than they actually were. In some cases, the suit says, Corinthian would hired students for just a few days after graduation, and use these short stints of employment to claim graduates found jobs after graduation.
At one school in Georgia, employees went even further.
“School employees created fictitious employers and reported students as having been placed with those fake employers. The school employees then had friends falsely verify the employment. This resulted in increasing placement rates by as much as 37% per program,” the lawsuit says.
The false employment numbers were then employed as a component of high-pressure sales tactics that were used to lure young adults into taking out tens of thousands of dollars in student loans, the CFPB says. Prospective students were identified as “low self-esteem” and “isolated” individuals who were “unable to see and plan well for the future.” Such individuals were then aggressively targeted for marketing pitches. When students couldn’t afford to attend on government loans alone, the college offered “Genesis” loans that the government says were known to have very high default rates.
The suit is the latest devastating blow to hit Corinthian, which has rapidly collapsed under the pressure of falling enrollments and increased federal scrutiny. In June, a federal government decision to cut off federal student loans for the school’s students caused Corinthian to rapidly run out of cash and go bankrupt, since over 90 percent of its earnings came via federal loans. The College soon reached an agreement with the federal government to sell off its campuses and wind down operations, a process that is expected to be over within the next six months.
“We believe Corinthian lured in consumers with lies about their job prospects upon graduation, sold high-cost loans to pay for that false hope, and then harassed students for overdue debts while they were still in school,” said CFPB director Richard Cordray in a statement.
The company, meanwhile, has not denied the full extent of the accusations against it, but has instead maintained in an official statement that they were “isolated incidents” at particular campuses.
The suit seeks to have Corinthian disgorge all profits deemed to be ill-gotten and to pay additional restitution, an amount that exceed $500 million. However, with the company on the brink of final collapse (its current stock price is nine cents), it is unclear how much money can be recovered even if Corinthian is found guilty.
The new lawsuit is not the only court proceeding in progress for the doomed company. The U.S. attorney in Los Angeles recently sent a grand jury subpoena to the company, which could proceed future criminal charges. Many state-level law enforcement bodies have targeted the company as well.
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