Suit Accuses U. of Phoenix of Improper Loan Tactics
December 27th, 2009
Three former students at the University of Phoenix are seeking class action status for a federal lawsuit that accuses the giant for profit institution of using improper tactics to minimize its “true” record on student loan defaults.
According to the lawsuit, which was filed last month in the U.S. District Court in Little Rock, Ark., the university “effectively pays off” the loans of students who withdraw from the institution, then demands repayment from those students under terms more onerous than those of the original federally guaranteed loans.
By canceling those students’ federal loan debt, the suit argues, the university prevents those loans from being considered in its official default rate and keeps its rate from suffering.
But “the decision to cancel the loan is for the student to make,” the lawsuit asserts, and the company has no right to interfere with the contracts students have made with their lenders.
The students who brought the lawsuit had obtained federally guaranteed loans through banks but withdrew from the university soon after enrolling. The university, which held their student loan money, should have subtracted the amounts of tuition they owed from those accounts, the lawsuit states. Instead, it says, the university sent the federal money back to the original lenders “without the knowledge or consent of the students,” then sought to collect tuition owed directly from the students.
Other for profit college companies follow similar payback policies for students who have obtained student loans and later withdraw from classes without completing them.
The university, in a written statement, said, “Regrettably, the plaintiffs in this matter have misconstrued the Higher Education Act and related regulations at issue.” It said its refund policies comply with federal student aid rules.