Defunct private credit firm accused of student loan scam

A complaint has been filed against the now-defunct private equity firm Aequitas Capital Management in relation to an allegedly predatory student loans scheme.

The US Consumer Financial Protection Bureau claimed that Aequitas enabled Corinthian College to make high-cost private loans to its students so that it would seem as if the school was making enough outside revenue to meet requirements for receiving federal student aid.

“The risky loans saddled students with high-priced debt that both Aequitas and Corinthian knew students could not afford. Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare,” said Richard Cordray, director of the CFPB.

The watchdog alleges Aequitas purchased or funded $230 million in private loans, branded by the school as “Genesis loans.” Specifically, it said the private equity firm and the college plotted to make it seem as if the school was getting outside revenue in the form of the Genesis loans, when in reality Corinthian was paying Aequitas to support the loan program.

“Corinthian and Aequitas engaged in this charade to satisfy Corinthian’s obligations under the 90/10 rule, a federal law requiring for-profit schools to obtain at least 10 percent of their revenue from other sources in order to get federal loan dollars,” the CFPB said.

“The bureau charges that both Corinthian and Aequitas knew most Corinthian student borrowers would default on these loans. Under the scheme the defaults would not affect Aequitas because Corinthian was committed to buying back all delinquent loans.”

Aequitas was shut down by the SEC in March 2016 over allegations its partners were running a $350 million Ponzi scheme. Its receivership is being overseen by a federal court in Oregon.