Lawsuit: Dismiss former Corinthian college students' private loans

Public interest lawyers Thursday filed a lawsuit asking a federal court to forgive the private loans of thousands of students of the now-defunct Corinthian College chain.

The lawsuit was prompted by threats received by former students, lawyers said, from companies trying to collect on former students’ private loans.

“I got calls that they were going to take my house away," said Deborah Terrell in a video produced by lawyers. "I got calls that they were going to do a garnishment on my wages."

Terrell is a Riverside resident who took out government and private loans two years ago to pay for a $19,000 medial administrative assistant program at a Corinthian College.

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She is also the named plaintiff in the lawsuit alleging that, after Corinthian’s bankruptcy last year, the companies that bought students’ private loan debt pledged to forgive 40 percent of that debt and refrain from suing or threatening to sue former students who didn’t pay it off.

“So they’re violating a prior arrangement that was made with the federal government,” said Anne Richardson, a lawyer with Public Counsel, one of three law firms that filed the suit.

Richardson said she doesn’t know the exact number of former students affected. She said the typical private loan is about $3,000.

The lawsuit claims University Accounting Service, Balboa Student Loan Trust, and other companies violated the Fair Debt Collection Practices Act and other consumer protection laws. The suit is asking the court to forgive the students’ private loan debt, return they money they’ve already paid, and award damages for the threatening collection tactics.

Plaintiff’s lawyers said Corinthian targeted lower-income people who’d have to take out loans to pay for the classes.

“The folks that we’re talking about are living on minimum wage jobs, single mothers," Richardson said. "The whole reason they went to these schools is that they wanted to try to escape the cycle of the working poor."

The two companies could not be reached for comment.

Lawyers’ key argument in the lawsuit is that these companies knew Corinthian secured the private loans through fraud and therefore assume the liability of the loans.

That fraud was proved by the U.S. Department of Education in April, 2015. Department investigators found that Corinthian misrepresented and manipulated job placement statistics that were used to convince students to sign up for Corinthian career programs.

The department fined Corinthian $30 million dollars. The Santa-Ana based for-profit college filed for bankruptcy the following month.