*Update – A commenter has provided a lot of additional information on this issue; I encourage readers of this post to check out the comments section.
Michael Berger, one of the lawyers in the lawsuit against Silver State Helicopters Flight Academy, reported on his blog November 10th that one of the lenders in the case, Citibank, is now offering students 100% loan forgiveness on loans taken out to attend the now-bankrupt school in exchange for being released from future claims. From his web-site:
On November 5, 2008, Citibank began offering 100% loan forgiveness of Citibank SSH student loans in exchange for an assignment of the student’s claims against SSH and against Citibank. We highly recommend that all of our clients with Citibank loans accept this offer. 100% Loan forgiveness has always been our highest goal for each and every one of our SSH clients. It is a complete victory for each and every one of our Citibank clients. It sets the bar high for KeyBank and Student Loan Xpress, the 2 other banks that wrote the majority of the SSH student loans.
I don’t know much about this case, but apparently Silver State had students pay tuition, approximately $70k, up front using loans that the school helped them arrange through private lenders. The school wound up declaring bankruptcy in February of this year, leaving hundreds of students in the lurch. Berger’s firm has been investigating whether there was collusion between the school and student loan lenders.
“Goal Financial had used mailings that looked as though they came from the federal government and had offered iPods, spa gift cards and other items to lure borrowers.
Under the terms of the agreement, Goal will adopt a marketing code of conduct developed by the office of the attorney general, Andrew M. Cuomo, and will pay $350,000 to a fund maintained by his office for educating students about the financial aid process.
Eight other lenders have already agreed to abide by the code of conduct, which sets out rules for companies to follow in their direct-to-consumer marketing efforts. Seven of those companies have contributed more than $1.4 million to the attorney general’s fund.”
The Times also reports that in 2006, Goal was one of the top 10 largest providers of student debt consolidation loans. One interesting thing about this whole mess – no report of what, if any remedies, the students who took out these loans are going to get.