Illinois residents who once attended Corinthian Colleges could be eligible for a portion of $11.6 million in relief for student debts accrued during an alleged scheme that reached across the country.
The scheme allegedly involved Oregon-based hedge fund Aequitas and now-defunct Corinthian, which shuttered its campuses and liquidated its assets in 2015 amid a government investigation for allegedly deceptive practices.
The chunk for Illinois students is part of a $192 million agreement Attorney General Lisa Madigan, 12 other state attorneys general and the federal Consumer Financial Protection Bureau reached with Aequitas.
The settlement is Madigan's latest move in an ongoing battle against fraud schemes at for-profit schools.
"This exposes the dirty secret that large Wall Street hedge funds are behind the shady for-profit industry," Madigan said.
Aequitas, which is facing additional legal battles involving the Securities and Exchange Commission, allegedly funded loans facilitated by Corinthian that burdened students with "high-priced debt with a high likelihood of default," according to a lawsuit filed Thursday in federal court in Oregon.
The loans Aequitas was involved in were part of Corinthian's institutional loan program, Madigan said. The income made it appear as though Corinthian was meeting federal regulations to operate and allowed its schools to gain access to federal student loan dollars.
Corinthian and Aequitas both knew the loans would likely default, the suit alleges. And the students, many of whom were low-income or first-generation college attendees, "were the ones left holding the bag," the suit says.
Investigations into Corinthian revealed it had misled students at some of its schools — including campuses in Illinois — for years about their job prospects.
Soon after Corinthian shut down, the SEC took aim at Aequitas, alleging in a 2016 lawsuit that it was a Ponzi-like scheme. By March 31, 2017, Aequitas held a portfolio of student loans with an unpaid balance of about $190.5 million, according to the lawsuit. The more than 46,000 loans had been made to more than 41,000 individual borrowers.
The courts appointed a receiver to hold Aequitas' assets while that lawsuit worked its way through the courts. The court-appointed receiver declined to comment on behalf of Aequitas.
Under the settlement, student loan debt held by the receiver will be canceled, according to a news release from Madigan's office.
More than 2,800 Illinois students who attended a Corinthian school will be eligible for a portion of $11.6 million in relief, Madigan said. Of those students, more than 70 percent will have all of their receiver-held loans canceled.
Madigan has led multiple investigations surrounding alleged fraud among for-profit institutions, such as Corinthian.
She filed a suit in Cook County Circuit Court in January alleging student loan servicer Navient and its subsidiaries failed to properly assist borrowers struggling with loans. Navient has denied the allegations.
Recently, she was among a group of attorneys general that sued the U.S. Department of Education and Secretary Betsy DeVos for delaying updates to an Obama-era rule that clarifies how defrauded students can apply for loan forgiveness.
Corinthian's collapse was a catalyst in that rule's creation.
Madigan said she is working "to get money back to defrauded students so they're not left with a lifetime of paralyzing debt.
"I can't get them their wasted time back, but I need to get them their money back," she said.