A coalition of state and federal agencies have reached a $183.3 million settlement with Aequitas Capital Management Inc., a financial services firm under SEC-imposed receivership that provided loans to students at the now-defunct Corinthian College.
The settlement is subject to approval by the Oregon federal court overseeing the Aequitas receivership, according to the office of New York Attorney General Eric T. Schneiderman.
About 350 New Yorkers, mostly former students at Everest Institute Rochester, will be eligible for a total of $2.4 million in loan relief under the settlement. The settlement, which will affect 41,000 students nationwide, was reached by a coalition including Schneiderman, 12 other state attorneys general, and the federal Consumer Financial Protection Bureau, Schneiderman’s office said in a news release.
Borrowers who attended a Corinthian school when it closed in 2014 or who defaulted on their loans will receive full discharges of their Aequitas student loans, including any accrued interest. This group represents about 240 of the 350 New York borrowers. All other borrowers, about 110, will have 55 percent their loans discharged, including any past-due interest on the forgiven amount.
Under the settlement, the average borrower will receive between $6,000 and $7,000 in loan relief.
Corinthian’s business relied heavily on federal student aid. To qualify to receive federal funds for-profit schools must receive a certain portion of their revenue from sources other than federal student aid. Before 2014, when Corinthian was in danger of falling below the required threshold of non-federal revenue, Corinthian entered into an arrangement with the private student loan company, Aequitas Capital Management.
Aequitas provided private student loans to Corinthian students and Corinthian agreed to buy back all loans that defaulted within a specified period, eliminating Aequitas’ risk of loss. The arrangement made it seem that Corinthian was in compliance with government regulations.
The loans provided no financial benefit to Corinthian other than allowing Corinthian to access federal funds for which they would not have otherwise qualified. Aequitas and Corinthian also knew that students were unlikely to be able to repay the loans, even as they continued making loans. The loans had default rates of 50 to 70 percent.
Founded in 1995, Corinthian Colleges bought the Rochester Business Institute in 2006 and renamed it Everest Institute Rochester. In 2014, in response to mounting evidence that Corinthian was engaging in misconduct, the U.S. Department of Education delayed federal aid to the school. Soon after, most of its campuses were sold to a nonprofit. Thirty campuses, including Everest Rochester, closed.
In May 2015, Corinthian filed for bankruptcy and students of closed schools were left with both public and private student loans.
In April, a federal investigation concluded that Corinthian misrepresented graduates’ employment success in connection with some of its programs. As a result, thousands of additional students became eligible for forgiveness of federal student loans.
As of June, about 27,000 students nationwide who had been approved for loan forgiveness had yet to see their loans discharged. Some students are nearing the end of 12-month forbearances on their loans and face restarting monthly payments on debts that should rightfully be canceled.
On June 5, Schneiderman and 19 other attorneys general sent a letter to U.S. Secretary of Education Betsy DeVos urging her agency to speed up review of applications and finalize the discharge of loans where forgiveness has already been approved.