In the same week that the CFPB issued a report on the practices of some services of private loan debt, Bank of America decided to give private for-profit Corinthian Colleges more time to make good on its debts.
This would amount to a delicious bit of irony, were it not for the fact that it seems so unjust.
Yesterday (October 16th), Corinthian revealed that its Lenders had agreed to put their loans into forbearance. As the Administrative Agent, Bank of America acted on behalf of all of the creditors. Those creditors have agreed not to enforce covenants in the Credit Agreement until at least the end of the year. Had they done so, the Lenders would have been able to claim the assets of Corinthian. This would then put those lenders in charge of a group of schools that had approximately 72,000 students at the end of 2013. It would have meant that those banks were suddenly in control of Corinthian's campuses, some of which are up for sale as per a mandate from the Department of Education. In other words, the banks deciding that the prospect of conducting an REO fire sale was distasteful.
In the previous agreement of May 17th, 2012, the Lenders said Corinthian would be in default if it was no more than five days late on a payment.
While the banks do not want the schools, they have stipulated that all proceeds from the sale of campuses must be put into an account under the control of the lenders.
The basic terms are this: The Lenders will not a) foreclose b) initiate judicial or non-judicial proceedings c) accelerate demands for repayment of accrued obligations or outstanding principal d) demand that Corinthian collateralize its debts with cash and e) keep the line of credit open. In turn, Corinthian promises to a) pay all of the $3 million Corinthian collected from the sale of their QuickStart program last month b) make two payments of $5 million and $2 million on two different dates before Thanksgiving c) apply excess funds from an account to debt obligations d) transfer the lien on debts to any purchaser of Corinthian properties and e) deposit any funds that come from the sale of a campus into accounts controlled by the lenders.
On the same day, the Consumer Financial Protection Bureau published its Annual Report of the Student Loan Ombudsman. Yep, the same day!
As the CFPB has supervision, rule-writing, and enforcement authority over private student loans (and not Federal), the report is largely focused on that category. That makes their findings especially relevant to this discussion, as students at for-profit schools are almost twice as likely as others to take out a private loan. Among the most significant of their findings:
"Borrowers sought to negotiate a modified repayment plan during a period of financial distress, [but] lenders and services providing no options, leading the borrower to default...consumers continue to encounter limited or no flexibility when seeking help from their servicer or lender."
To quote the folks at National People's Action, "That Ain't Right."
The original agreement states that the Lenders can, as a remedy for default, demand immediate repayment of the unpaid principal balance (s) as well as all accrued interest. In other words, Bank of America could have elected to treat Corinthian in a manner similar to the way that many of Corinthian's students are apparently being treated by the private lenders to which they are in debt. But they did not. In fact, a key difference with these two examples is that there is collateral to be retained from Corinthian, in contrast to the case of a private loan.
- Bank of America, Administrative Agent, Domestic Line of Credit Issuer, Swingline Lender,
- Union Bank, N.A.
- Bank of the West
- OneWest Bank
- US Bank, N.A.
The original loan, agreed to on May 17th, 2012, made $140 million available to Corinthian.