Minnesota court rules closed for-profit schools must fully repay illegal loans

Two shuttered for-prof­it uni­ver­si­ties must re­pay stu­dents both the prin­ci­pal and in­ter­est on mil­lions of dol­lars in il­legal loans they is­sued, the Min­ne­so­ta Court of Appeals ruled Mon­day.

Globe University and Min­nesota School of Business, which closed in 2016 amid a legal bat­tle with the state, is­sued un­li­censed loans to thousands of stu­dents, with in­ter­est rates of up to 18%. Min­ne­so­ta deems rates of more than 8% on such loans "usu­ri­ous," and the state Su­preme Court de­clared the Globe loans un­law­ful. A dis­trict court then ordered the schools to re­pay in­ter­est stu­dents had paid only on loans with rates that ex­ceed­ed 8%. But the Ap­peals Court found the schools have to cov­er the prin­ci­pal and in­ter­est of those loans, which the state es­ti­mat­es totals $7.2 mil­lion and went to as many as 6,000 stu­dents.

The rul­ing is the lat­est in a five-year legal saga, which start­ed when then-Attorney General Lori Swan­son sued the schools, al­leg­ing Globe's crim­i­nal jus­tice pro­gram de­fraud­ed stu­dents who be­lieved they would be able to work as po­lice and pro­ba­tion of­fic­ers in Min­ne­so­ta. The courts agreed, but later this year the state Su­preme Court will weigh a lower-court ruling that the schools only need to com­pen­sate stu­dents who tes­ti­fied in the case.

"I feel bad the stu­dents have had to wait such a long time to get their day of jus­tice," said Swan­son, who is now in pri­vate prac­tice. "This is a­mong the most egre­gious cases I was in­volved in as at­tor­ney gen­er­al."

Defense attorneys issued this statement Monday on behalf of the closed Woodbury-based schools: "For more than a century, Globe University and Minnesota School of Business provided a valuable education to its students. The district court agreed and issued its order taking into account that value. The Court of Appeals ignored the district court's determinations and in doing so, effectively stripped the district court of its power to apply Minnesota law to the circumstances before it. The Schools are disappointed with the decision and are considering their options for review."

The court case has stretched on three years af­ter Globe and the Min­ne­so­ta School of Business shut down fol­low­ing the U.S. Department of Education end­ing their ac­cess to fed­er­al fi­nan­cial aid pro­grams.

The schools claimed that the loans weren't tech­ni­cal­ly stu­dent loans but rath­er "open-end cred­it plans" that should have been ex­empt from those rules.

Ac­cord­ing to court docu­ments, the two schools of­fered stu­dents loans of up to $7,500 with in­ter­est rates be­tween 12 and 18%, though they low­ered their rates in 2013. The high court found that the two schools failed to ob­tain a re­quired state li­cense to is­sue stu­dent loans, and that they were char­ging usu­ri­ous in­ter­est rates.

The schools paid about half the $7.2 million to the state under a previous lower court ruling that said they were only responsible for interest beyond the 8% allowed. The lat­est rul­ing calls on the company to cover the remainder and also re­quires the schools to pay legal fees and costs.

Swan­son filed suit against the schools in 2014 claim­ing that many stu­dents, in­clud­ing vet­er­ans using GI Bill bene­fits, en­rolled in the schools' crim­i­nal jus­tice pro­gram only to later dis­cover that their de­gree didn't meet re­quire­ments for be­com­ing po­lice and pro­ba­tion of­fic­ers in Min­ne­so­ta. The state amend­ed that suit the fol­low­ing year to add claims for lend­ing with­out a li­cense and char­ging un­law­ful­ly high in­ter­est rates.

Swanson said Monday that the Appeals Court ruling will serve as an important deterrent to lenders who won't be able to get away with only forfeiting the illegal portion of loans with unlawfully high interest rates.