Former Corinthian College Students Sue To Have Private Loans Discharged

As the Department of Education is working to wipe away millions of dollars in federal loans owed by former students of now-defunct Corinthian College Inc. schools, some former students continue to receive monthly bills for private loans they took out in order to attend the for-profit colleges. Now one former Corinthian student has filed a federal class action against the financial firms that currently hold the private student loans.

The lawsuit, filed in Los Angeles, against Turnstile Capital Management, LLC, Balboa Student Loan Trust, and University Accounting Service, LLC seeks to provide California students defrauded by the for-profit college chain with full debt relief.

According to the lawsuit [PDF], Turnstile, Balboa, and UAS violated federal and state laws by purchasing CCI’s so-called “Genesis” loans and trying to collect on them despite knowing that the loans were allegedly obtained through fraudulent and deceptive means.

The suit claims that the companies knew at the time they purchased the loans that Corinthian had been accused of engaging in a slew of misleading and deceptive tactics to enrolls students, and, in turn, pressure the to take out the costly loans.

The loans were part of CCI’s in-house private lending program called Genesis.

Through the Genesis program, private lenders provided student loans to Corinthian students according to Corinthian’s terms but without revealing to students the lenders’ connections to Corinthian. Frequently, Corinthian ultimately bought back the loans from the private lenders so that Corinthian became the holder of many of the Genesis loans.

According to Thursday’s lawsuit, Turnstile bought $505 million of the loans prior to CCI’s collapse. The company then created Balboa to hold the student loan notes on its behalf.

In an attempt to collect the debts, the suit claims that Balboa enlisted the help of UAS, which allegedly used abusive and illegal tactics when seeking to collect on these illegitimate loans.

A former CCI student named in the lawsuit claims that she received calls from UAS up to five times a day.

On the calls, which sometimes occurred back-to-back or every 30 minutes, she claims UAS reps repeatedly told her that UAS could and would come after her house and threatened to come after her bank account and wages even when they didn’t have the legal right to do so.

“These private lenders are victimizing these students a second time by continuing to try and collect on debt that was incurred through fraud and deceit,” Anne Richardson, directing attorney of the Consumer Law Project at Public Counsel, which filed the suit on behalf of students, said in a statement.

The complaint cites the fact that the Department of Education has discharged millions of dollars in federal student loans after finding unlawful conduct by Corinthian in inducing students to enroll with false promises of high job placement outcomes as evidence that private loan debt should also be erased.

This isn’t the first time that CCI’s Genesis program has come under fire. Last year, the Consumer Financial Protection Bureau won a default judgement against CCI over its predatory lending scheme involving the loans.

According to that case, once students were tempted by the promise of long-lasting careers with CCI degrees, they were pressured to take out costly and predatory private Genesis loans to pay tuition not covered by federal student loans.

CCI then allegedly used illegal debt collection tactics to harass students into paying back those loans while still in school.

Under the Genesis loan program, students were required to make monthly loan payments while attending school. By making students repay their loans while attending classes, CCI was allegedly able to take advantage of their position of power to engage in aggressive debt collection tactics – and that staff received bonuses for successfully collecting payments from students.

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