Nearly 41,000 former students of now-defunct for-profit educator Corinthian Colleges will soon receive refunds for the private student loans they received to attend college, after a coalition of state attorneys general and federal agencies reached a $183.3 million settlement with Aequitas Capital Management, the issuer of these loans. 

New York Attorney General Eric Schneiderman announced today the settlement [PDF] — reached by 13 state attorneys general and the Consumer Financial Protection Bureau — essentially canceling or writing down all outstanding balances for former students of Corinthian.

For instance, students who have fallen into default and whose campuses closed as a result of Corinthian’s bankruptcy will have their debts canceled. The remaining students will have 55% of their Aequitas loan discharged, including any past-due interest.

This, the AGs estimate, will result in each former student receiving between $6,000 and $7,000. The settlement must still be approved by the Oregon federal court overseeing the Aequitas receivership.

The Case

Prior to Corinthian College’s demise, the school relied heavily on federal student aid. However, the so-called 90/10 Rule, schools can only derive 90% of their revenue from federal funds. This means they must find a way to collect 10% of their revenue from other sources.

To do this, Corinthian entered into an agreement with lender Aequitas Capital Management. Under the deal, Aequitas provided private student loans to Corinthian students. Corinthian then agreed to buy back all loans that defaulted within a specified period, eliminating Aequitas’ risk of losses from defaults.

The AGs and CFPB alleged that Aequitas made the loans despite knowing that Corinthian students were unlikely to be able to repay the loans. The loans had a default rate of 50% to 70%.

“Aequitas Capital Management took advantage of their ambition and schemed with Corinthian to saddle these students with high-default loans at the now-bankrupt college,” New York Attorney General Eric Schneiderman said in a statement. “This was nothing more than a sham that victimized unwitting students and deceived the government and taxpayers.”

Loan Forgiveness

In recent months, several states and the federal government have worked to refund borrowers hundreds of millions of dollars in student loans taken out by those attending now-defunct for-profit colleges.

However, a majority of these refunds are related to federal student loans, and the so-called Borrower Defense rule, which allows students at failed schools to appeal to get out of their federal loan obligations.

Related: You Can’t Discharge Your Student Loans In Bankruptcy Because Of Panicked 1970s Legislation

This rule, however, does not apply to private student loans.

Still, at least one college in the last year has forgiven private loans. In Sept. 2016, Bridgepoint Education, the operator of for-profit colleges Ashford University and the University of the Rockies, was ordered to forgive $23 million in student loans to resolve allegations it deceived students into taking out private student loans that cost more than advertised.

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