Thousands of former students in Massachusetts and across the country continue to be hounded about private loans they took out to attend for-profit schools that many say failed to provide the education they promised and have since shut down.
The US Department of Education has agreed to wipe out some of the millions of dollars in federal loans that students loaded up on to attend institutions such as Corinthian Colleges Inc. and ITT Technical Institute, because regulators allege that they were predatory and left students in the lurch when they abruptly closed. But many of these same students continue to be stuck with their private loans.
Shedding this private debt, held by collection companies, credit union organizations, and investment firms, has proven to be much more difficult, leaving students with thousands of dollars in loans from schools.
“For the private student loans, it’s harder to get immediate relief,” said Toby Merrill, director of the Project on Predatory Student Lending at the Legal Services Center at Harvard Law School. “There’s a lot of damage done to students.”
Students took out these private loans when they couldn’t afford the school tuition and federal loans weren’t enough to cover the costs. Many students were urged to take on private debt by the for-profit schools, which also acted as the initial lender, before shifting the loans to third parties.
Now, some of the financial companies that hold the debt say they, too, were victims of these for-profit schools and should be able to recoup their expenses.
The amount of private loans students took out to attend these now-defunct, for-profit schools is unclear, but it is likely in the hundreds of millions of dollars. For example, in 2010, when many of these for-profit schools were booming, Corinthian Colleges expected to give out $150 million in private loans and ITT dispersed $64 million in loans during just the third quarter of that year, according to a report from the National Consumer Law Center.
The legal options to discharge private debt are limited. In some cases, financial firms have sold the debt off to collection companies, complicating efforts by regulators, students, and advocates to track down who holds the loans and applying for discharges. Lawsuits and bankruptcy cases have entangled some of these financing companies, forcing former students to wait in line behind a long list of aggrieved parties for relief.
Regulators have been able to force some schools, lenders, and financial firms to forgive some of these loans. Last month, Massachusetts Attorney General Maura Healey reached a settlement with Minnesota-based Jefferson Capital Systems, a debt collection company, to discharge $936,000 owed by former Corinthian Colleges students in Massachusetts.
“This is a double hit to students,” Healey said. “First, predatory schools load students up with unaffordable government loans, and then they steer borrowers into private subprime loans to squeeze out even more profits.”
Despite a series of isolated settlements, many students continue to have to pay, are dealing with letters and calls from collection companies, and have sustained damage to their credit ratings that can make it difficult for them to borrow money, student advocates said.
Deneen Gray, 25, of Framingham, enrolled in Everest College, a subsidiary of Corinthian Colleges, in 2013, hoping to get the skills she needed to become a medical assistant. The school’s guarantee of a job placement after graduation convinced the recent Jamaican immigrant that she could incur the debt and enroll.
Yet when she was done, Gray said, she was left without a job but with $12,000 in federal student loans and $4,000 in private loans.
It took her a year and help from a temporary employment agency to find a job as a medical assistant. The US Department of Education wiped out her federal loan earlier this year, because it found that Corinthian had engaged in misconduct and had misled students about its programs and job placement rates. But the roughly $120 monthly payment on the private loan still hangs over her, Gray said.
At one point the balance on her private loan, which was bought by Campus Student Funding, dropped to $1,000, but she fell behind on her payments. Interest and late fees accumulated, and now Gray’s private loan debt is back above $2,000.
“I shouldn’t have to pay this,” Gray said. “I couldn’t find a job and the school actually closed.”
These private loans represent a small chunk of the overall student loan debt accrued to attend these for-profit schools. Schools can receive only 90 percent of their funding from federal student aid — with the remainder coming from tuition payments or private sources. For many schools, the private loans were a way to ensure that the institutions stayed under the federal cap and could continue to receive public money. For students, they also helped cover gaps in financing their tuition.
For example, ITT made $11 billion in revenue from 2006 to 2015, with about $8.4 billion of that money coming through federal student aid, according to court documents. The school closed in 2016.
After the financial crisis, when banks tightened borrowing requirements, schools such as ITT and Corinthian acted as private lenders and then sold the debt to third parties.
Oregon-based investment firm Aequitas Management LLC, which owned Campus Student Funding, bought about $500 million in Corinthian Colleges loans, helping to fuel the for-profit chain’s rise. But when Corinthian declared bankruptcy in 2015, the loans soured and it threw Aequitas’s finances into a tailspin. In an effort to salvage Aequitas, its managers allegedly made false and misleading statements to lure in wealthy investors, according to the Securities and Exchange Commission.
Aequitas is now under the management of a court-appointed receiver as investors and creditors wait for some financial relief. Aequitas’s receiver declined to comment about the collections of the Corinthian Colleges student loans.
ITT sold millions of dollars in its private loans to an organization formed by seven credit unions, including Workers Credit Union in Fitchburg. The Student CU Connect CUSO, as that organization is known, is now in a legal battle with the ITT receiver over its role in the for-profit school’s collapse.
Richard J. Bernard, an attorney for the credit union organization, declined to comment specifically on collection practices, but said his client did nothing wrong.
“Student CU Connect CUSO is a victim — not a perpetrator — of the alleged misconduct of ITT and its former management, and, at all times, has acted lawfully and in good faith,” Bernard said.
Still, some for-profit students have received relief.
In May, after Harvard’s Legal Services Center brought a case against ITT, a bankruptcy judge agreed to stop collections on private loans that the for-profit school had kept and didn’t sell to third parties.
“It’s one of the small victories,” said Amee Sullivan, 37, a former ITT student from Alabama who was part of the Harvard case. Sullivan said she struggled to pay off her $9,000 private loan after graduating in 2013. Finding a job as a network administrator has been difficult, since few companies acknowledged her associate’s degree from ITT, Sullivan said. Her family’s financial situation became even tighter more than a year ago, when her husband lost his coal mining job and had to take a lower-paying position.
Here in Massachusetts, aside from the July settlement with Jefferson Capital Systems, Healey’s office was also able to discharge $2 million in outstanding private loans for students who had attended the now-defunct American Career Institute and had taken on debt through the school.
But officials with Healey’s office say that in cases where the debt has been sold off, they only hear about some of these collectors when students come forward to complain that they are receiving bills for these private loans.
Healey said her office is trying to ensure that these companies are no longer collecting on private loans.
Ultimately, though, relief remains scattered.
“There are no easy answers,” Merrill said.
Deirdre Fernandes can be reached at firstname.lastname@example.org. Follow her on Twitter @fernandesglobe.