OLYMPIA — Washington State Attorney General Bob Ferguson recently announced that Lake Oswego, Ore.-based Aequitas Capital Management must provide nearly 2,000 Washington student loan borrowers more than $7 million in debt relief.
A motion was filed in federal court that, when approved, will allow Ferguson to file an assurance of discontinuance forcing the investment management firm to reduce, and in some cases eliminate, private student loan debt it manages for former students of for-profit Corinthian Colleges.
“Aequitas exploited the broken promises that Corinthian made to Washington students,” Ferguson said. “These student borrowers deserve relief.”
Corinthian owned and operated seven Washington state Everest College campuses in Everett, Fife, Tacoma, Bremerton, Renton, Seattle and Vancouver until February of 2015, when they were sold to Zenith Education Group. Zenith transitioned the schools from for-profit to non-profit status. The Fife location is no longer open.
The Consumer Financial Protection Bureau sued Corinthian Colleges over its “illegal predatory lending scheme” in 2014, and Corinthian completely ceased operations in April of 2015. That same month, Ferguson, along with several other Attorneys General, sent letters to the U.S. Department of Education urging assistance for students victimized by predatory practices at Corinthian Colleges and other for-profit schools. In 2016, the U.S. Department of Education found that Corinthian misrepresented job placement rates for many of its degree programs in Washington and across the country.
Corinthian has come under fire along with other large for-profit colleges for their aggressive recruitment practices, in addition to misrepresenting job placement rates. Many for-profit colleges also have high dropout rates, sometimes as much as 50 percent, often leaving students with potentially enormous debts but no degree or certificate to show for it.
Aequitas’ role
According to the Attorney General’s Office (AGO), Between 2011 and 2014, Aequitas, through its affiliate, Campus Student Funding LLC, participated in Corinthian’s predatory lending practices by providing liquidity and financing. Aequitas helped Corinthian make more than $500 million in private student loans to borrowers attending Corinthian Colleges.
Aequitas purchased Corinthian private student debt for about 50 percent of the initial loan value. The discounted price of the debt, along with management and transaction fees paid by Corinthian, allowed Aequitas the potential to make a large profit on the loans that were repaid. In addition, Corinthian agreed to buy back any loans that were more than 90 days delinquent — thus insulating Aequitas from the financial risk if the loans defaulted.
The 2015 demise of Corinthian in turn caused Aequitas to collapse. When Corinthian shut down and filed for bankruptcy, it could no longer repurchase defaulted loans as promised, leaving Aequitas holding the defaulted loans and their associated losses. Aequitas responded to this cash crunch by recruiting new investors in its management business to repay its prior investors and maintain its operations, rather than investing its new clients’ funds as promised.
In March of 2016, the Securities & Exchange Commission filed a lawsuit accusing Aequitas and its top executives of “hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.”
Aequitas was shut down and placed into receivership as a result of the SEC’s suit, and its defrauded investors will ultimately receive substantially less than their initial investment after the company is fully unwound.
Loan relief for Washington student loan borrowers
The Assurance of Discontinuance provides relief for Corinthian students in Washington.
Aequitas must forgive the loans of 1,241 Washington students whose loans are in default, totaling more than $5 million in relief. For 717 Washington student borrowers whose loans are still active, Aequitas must reduce outstanding balances by 55 percent, worth more than $2 million. Aequitas will also forgive the loans of several Washington borrowers whose campuses closed.
For the 717 Washington borrowers who still have remaining loan balances, Aequitas will give them the option to either reduce their monthly payments or pay their loans off early by leaving their payments the same. Borrowers with remaining balances remain free to seek additional relief from their debts independent of this resolution.
Aequitas will also request that credit bureaus remove any negative information related to its loans from all borrowers’ credit reports.
The debt relief for Washington borrowers was part of a more than $192 million agreement with Aequitas involving 13 states, in conjunction with the Consumer Financial Protection Bureau.
Federal student loan debt relief for former Corinthian students
Former Corinthian students may also be eligible for forgiveness of their federal student loans. The U.S. Department of Education has found that for certain programs of study, the school misrepresented its job placement rates, and borrowers are eligible for a streamlined debt forgiveness process. Former students who enrolled in programs not covered by the Department of Education’s findings may also apply to have their federal student loans forgiven. More information can be found here.
Free student loan debt assistance
Ferguson urges current and former students never to pay up front for help with student loan debt relief. For information on legitimate sources of free assistance, contact the Consumer Financial Protection Bureau or the National Consumer Law Center.
For problems with your student loan servicer or a debt collector contact the U.S. Department of Education’s Student Loan Ombudsman at 1-877-557-2575 or online here, the Consumer Financial Protection Bureau, or file a complaint with the Attorney General’s Office.
