By Lucy Ren

Troubled for-profit college chain Corinthian Colleges Inc. agreed with the U.S. Department of Education and the Consumer Financial Protection Bureau (CFPB) to forgive at least $480 million on private student loans, marking an “unprecedented debt relief,” according to CFPB Spokeswoman Moira Vahey.

The debt relief announced on Tuesday marks a 40 percent reduction in Corinthian’s principal balance on private loans, according to a Tuesday press release by CFPB.

The nonprofit education firm ECMC Group Inc. announced on Monday that it had finalized its acquisition for 56 of the 107 Everest and WyoTech campuses from Corinthian Colleges. Zenith Education Group, a new nonprofit subsidiary of ECMC is taking over the colleges. 

CFPB filed the lawsuit on Sept. 16 against Corinthian Colleges for predatory lending scheme. “The lawsuit is ongoing,” Vahey said.

According to the complaint, Corinthian “deceptively and unfairly induced students to incur significant debt,” and  “took illegal aggressive action to collect on that debt.” Campus staff members received bonuses based in part on their success in collecting past-due payments from students. Other efforts to collect such payments included “pulling students out of class, preventing students from attending and registering for class and terminating students’ computer access.”

Corinthian had strong financial incentives to induce its students to take out its private loans, known as the “Genesis loans.” Every loan dollar that Corinthian induced its students to borrow allowed Corinthian to “receive up to an additional nine dollars in Title IV aid,” the lawsuit stated.

“For too many students, Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” said CFPB Director Richard Corday in a September press release.

Corinthian is headquartered in Santa Ana, California. It operates five Everest College campuses in northern Illinois: Bedford Park, Burr Ridge, Melrose Park, Merrionette Park and Skokie. All of them are being acquired by ECMC.

ECMC will convert the former Corinthian campuses to nonprofit status. It has agreed to certain conduct provisions when operating the acquired schools, including not offering an institutional loan program to current or future students for a period of seven years.

ECMC will also work to ensure that “Corinthian will forgive all principal, interest and other indebtedness under outstanding student loan notes,” according to a letter from ECMC to CFPB.

“As part of the terms of the sale, ECMC and Corinthian agreed to pay $12 million in up-front payments to the Department of Education,” said Denise Horn, assistant press secretary at the department, in an email. “That amount will be used to benefit Corinthian students. There will be up to $17.25 million in earn-out payments paid to the Department over the next seven years, and that will also be used to benefit Corinthian students.”

Horn said the department is still exploring ways to use this payment.