Two months after Bridgepoint Education, the operator of for-profit colleges Ashford University and the University of the Rockies, revealed it was being investigated by the Department of Justice over its federal student aid funding, another federal agency has ordered the company to forgive $23 million in student loans and pay an $8 million penalty over allegedly illegal student lending practices.
The Consumer Financial Protection Bureau ordered Bridgepoint on Monday to pay $31.5 million to resolve allegations it deceived students into taking out private student loans that cost more than advertised.
According to the CFPB consent order [PDF], starting in 2009 Bridgepoint offered private loans to prospective students to help cover the cost of tuition not paid by federal loans.
An investigation by the Bureau found that Bridgepoint reps weren’t forthright with information about these loans. Alleged bad practices included giving students incorrect information about their monthly repayment amount.
In some cases, the CFPB found that students were told that previous borrowers normally paid off loans with monthly payments of as little as $25.
As a result, students at Bridgepoint were deceived into taking out loans without knowing the true cost, and were obligated to make payments greater than what they were promised, the Bureau alleges in its complaint.
In all, the CFPB estimates that Bridgepoint students borrowed $23.5 million through the company’s Institutional Loan program, with nearly $5 million already repaid.
Under the CFPB’s consent order, Bridgepoint must refund all payments made by students and discharge outstanding debt made under the loan program, for a total of about $23.5 million in refunds and discharges.
The company must now require prospective students to use a the financial aid disclosure tool when they borrow money to pay for school, must halt illegal loan practices, and remove negative loan information from borrowers’ credit reports.
Finally, the company must pay an $8 million penalty to the CFPB’s Civil Penalty Fund.
Our colleague, Suzanne Martindale, staff attorney for Consumers Union, called today’s announcement “another troubling example of the kind of abusive practices that seem all too common among for-profit universities.”
CU is among the groups calling on the Department of Education to adopt “strong rules establishing a clear path for students to get their federal loans cancelled when there is well-documented evidence of fraud or other illegal practices at their school.”
Bridgepoint is no stranger to regulator scrutiny.
In July, Bridgepoint revealed in a regulatory filing that the DOJ was investigating whether or not the education company violated the so-called “90/10 Rule,” which prohibits for-profit colleges from getting more than 90% of their operating revenue from federal student aid funding.
Bridgepoint explained that the investigation arose as a result of allegations that the company misstated the amount of money it received from government loans and grants provided to students, or overstated revenue tied to private loan program. If either scenario is accurate, that could mean a violation of the 90/10 Rule.
At the same time, the education company announced that Ashford University would be party to a Department of Education review by the end of the month.
Prior to that, in 2011, the DOJ launched an inquiry into the way the company compensated its admissions staff after an audit found that Ashford may have violated a ban on incentive pay for college recruiters.
Additionally, last year, the Dept. of Education began looking into Ashford’s marketing practices to determine whether the school made false representations to potential and enrolled students.