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Financial Services Law Insights and Observations

CA Attorney General secures $67 million in debt relief for former students of defunct for-profit school

State Issues State Attorney General Student Lending Debt Cancellation Debt Collection Consumer Finance Lending Courts

State Issues

On June 13, the Superior Court of the State of California ordered a California-based student loan provider to halt all debt collection efforts and forgive the balances on over 30,000 private student loans, which were used for programs at a now defunct for-profit college. According to the announcement by the California Attorney General, Xavier Becerra, the debt relief totals $67 million for the former students. The complaint, filed on the same day as the order, alleges the company engaged in unlawful debt collection practices, including sending borrowers notices threatening legal action, to collect on the student loans at issue. In addition to the debt forgiveness, the order requires the company to (i) refund all payments made on the student loans by California-residents after August 1, 2017; (ii) refund payments made prior to August 1, 2017 by borrowers who received allegedly unlawful debt collection notices; and (iii) delete negative credit reporting associated with the student loans for all of the for-profit students around the country.

As previously covered by InfoBytes, in a class action filed by former students, the Department of Education was recently barred by a preliminary injunction from continuing collection efforts on student loans used for the same defunct for-profit college.

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