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.