For-profit college chain Bridgepoint Education must refund and forgive $23.5 million in private loans made to students for misrepresenting the amount of their monthly installment payments.
The federal Consumer Financial Protection Bureau said Monday that the San Diego company, which operates online colleges Ashford University and the University of the Rockies, also will pay an $8 million fine.
“Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said Bureau Director Richard Cordray in a statement. “Together with our state partners, we will continue to be vigilant in rooting out illegal practices facing student borrowers in the for-profit space.”
The fine was expected. In recent months, Bridgepoint has set aside $16.2 million to cover costs of the bureau settlement and a parallel probe by the California Attorney General.
The company, with nearly $346 million in cash and no long-term debt, has the balance sheet strength to absorb the fine, according to analysts.
But Bridgepoint and other for-profit colleges have been under the regulatory microscope in recent years. In July, the company disclosed that the Justice Department is investigating whether Bridgepoint violated the “90/10 rule,” which forbids for-profit colleges from getting more than 90 percent of their revenue from federally backed student loans.
Monday’s action involved private loans that the company made to students, not federally backed financial aid. It covers 1,277 students who received loans from 2009 to 2015.
Bridgepoint did not respond to requests for comment. In a statement, the company said it did nothing wrong and provided all appropriate disclosures to students.
The company said the allegations claimed some of its representatives told students verbally that loans could be repaid in installments in as little as $25 a month, when the actual monthly payments were higher.
Bridgepoint said it chose to settle the case in order to move forward. “This agreement simply allows us to return our full attention and undivided focus to our students and their success,” said Chief Executive Andrew Clark in a statement.
The for-profit education sector has been under siege from federal regulators concerned about high drop out and loan defaults rates. Last week, ITT Technical Institute shut down more than 130 locations in 38 states, including two in San Diego County, after the Department of Education cut off access to federal financial aid for new students.
That follows last year’s bankruptcy of Corinthian Colleges, another for-profit education company that ran afoul of the Department of Education.
Under the settlement, Bridgepoint will refund all loan payments made by students, which total $5 million. It also will forgive $18.5 million in outstanding loans.
The company will offer students a financial aid shopping tool to help them understand what they are paying for school, graduation and loan default rates, potential salaries for their professions and post-graduation budgeting.
As with many for-profit colleges, Bridgepoint’s Ashford University has seen enrollment dip in recent years, falling from around 90,000 students five years ago to 48,895 students at the end of the second quarter.
Part of the fall-off stems from less aggressive marketing practices by the company. Ashford’s accreditation agency required it to improve drop-out rates. As a result, the company is trying to better screen prospective students to make sure they are ready for college level classes.
In addition, the for-profit college industry has suffered from increased competition from non-profit schools offering online degrees. And analysts say fewer adults are enrolling in online colleges since 2011.
News of the fine was announced before markets closed. Bridgepoint’s shares ended the day down 7 cents at $7.07 on the New York Stock Exchange.
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