Federal suit accuses for-profit Corinthian Colleges of predatory lending

September 16, 2014, 11:26 PM UTC

The federal government has filed a lawsuit accusing Corinthian Colleges, the for-profit education company in the process of shutting down its operations, of engaging in predatory lending and strong-arming its former students into paying back their student loans.

Earlier this summer, Santa Ana, California-based Corinthian reached an agreement with the Department of Education to close a dozen of its U.S. college campuses and sell the remaining 85 after numerous federal regulators complained about the company’s recruiting and marketing tactics. The planned shutdown left the system’s 72,000 enrolled students in limbo as they are still required to pay off student loan debt that the government has said they incurred after being misled by Corinthian about their job prospects.

In a federal lawsuit filed Tuesday, the Consumer Financial Protection Bureau claims that Corinthian deceived prospective students into enrolling in costly private loans with false promises of lucrative post-graduation jobs and then used “harassing tactics” to collect on the past-due loans. The CFPB said on its website Tuesday that Corinthian “lured in tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services” and that the company eventually “used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.”

Corinthian did not immediately respond to Fortune’s request for comment, but a company spokesman previously disputed the government’s allegations in a statement to The Los Angeles Times.

The complaint alleges that Corinthian sought out prospective students who did not have the means to pay for their tuition out-of-pocket, allowing the company to sign those students up for almost 130,000 private loans, totaling more than $568.7 million, over the past three years. (More than half of Corinthian’s students had a household income of $19,000 or less in 2011, according to the lawsuit.)

The company allegedly lied to those students about the likelihood that Corinthian could find them employment by falsely inflating its job placement statistics. The CFPB even accuses Corinthian of defining a successful job placement as any position that lasted at least one day, leading to the company paying employers to hire graduates on a short-term basis to help inflate the statistics.

The government also claims that Corinthian harassed students who did not pay off their debt in time, designating loans as delinquent immediately after students missed their first payment and even pulling students out of classrooms when their payments were late. Meanwhile, in its complaint, the CFPB claims that more than half of students defaulted on their loans within two years and 60% defaulted by year-three.

The lawsuit seeks restitution, plus damages, for students who took out private loans with Corinthian and it also asks that the federal court impose civil penalties on Corinthian and bar the company from committing future violations.

Corinthian’s (COCO) stock price sank to just over 10 cents a share on Tuesday as the company’s shares have lost roughly 95% of their value over the past year.