Attorney General Ellison wins full financial relief for former MSB/Globe University students as part of tentative deal reached with schools’ owners and Department of Education

$23.1 million in debt to be forgiven for 920 students, $15.6 million in additional compensation to be paid for students defrauded by schools’ ‘criminal justice’ program

Deal contingent on final confirmation by federal government, court approval, and full funding by schools’ owners

AG’s Office will contact students who have filed claims and are entitled to relief under tentative agreement

March 16, 2021 SAINT PAUL) — Minnesota Attorney General Keith Ellison announced today that he has secured a tentative agreement with Minnesota School of Business (MSB) and Globe University, their owners, and the U.S. Department of Education that is designed to provide at or near 100% financial relief to former students defrauded by the for-profit schools from 2009 to 2015. The agreement includes commitments to forgive $23.1 million in outstanding federal student-loan debt and pay $15.6 million in additional cash compensation for students fraudulently enrolled into the schools’ “criminal justice” program, as well as students issued unlawful loans by the schools.

The agreement was filed last night in bankruptcy court by an independent trustee as part of a plan to resolve the bankruptcy proceedings and pay the schools’ debts. While all parties have agreed to the deal in principle, the Department of Education needs to give final approval and the schools’ owners must fund the plan for loan forgiveness and other payments to move forward. If the agreement is approved and funded as planned, the deal will result in thousands in debt relief and additional refund payments.

Between the relief secured under today's tentative agreement and amounts the schools' paid in this case before they filed for bankruptcy, the Attorney General’s Office will have secured more than $42 million in relief for students harmed by the schools' unlawful conduct.

“People take out student debt because they trust it will help them better afford their lives in the future. For students in the so-called “criminal justice” program, MSB and Globe University abused their trust,” Attorney General Ellison said. “These students were often low-income, often veterans, often people of color, often supporting families while working full-time. They wanted nothing more than to get a degree that would allow them to pursue a career in public service. What they got instead was a waste of their efforts and inescapable debt. What they went through is heartbreaking.

“This agreement should finally resolve one of the biggest consumer-fraud cases ever brought by the Attorney General’s Office, and one of the only cases against a for-profit college ever brought to trial in America. While no dollar amount can make up for all the pain and loss that these students and their families experienced, I hope the relief my office has worked so hard to win will allow them to start affording their lives again after this terrible experience.”

Background to fraud in MSB/Globe “criminal justice” program

The agreement announced today is the culmination of a long and hard-fought court battle by the Attorney General’s Office that has involved two trials, several appeals, and a bankruptcy filing by the schools.

In 2016, the Hennepin County District Court issued an order finding that MSB and Globe engaged in consumer fraud by misrepresenting that students could pursue careers as Minnesota police or probation officers by enrolling in their “criminal justice” program. In truth, the degree — which cost between $40,000 and $80,000 — provided no value towards pursuing those careers. The Court’s findings detailed how the fraud was pervasive and deeply harmed students who wasted time and took out crushing debt as a result. The Court initiated a process whereby eligible students who attended the program could claim restitution. The process, however, was delayed by appeals. In a major ruling, the Minnesota Supreme Court upheld the lower court order in 2019. The schools then filed for bankruptcy, further delaying the restitution process.

The Attorney General’s Office had also alleged that loans that MSB and Globe issued to its own students at predatory 18% interest rates violated Minnesota’s “usury” and lender-licensing laws. The courts ultimately agreed and ordered the loans void and subject to full refunds. Partial refunds of $3.7 million were made by the schools in 2018 and additional refunds were forthcoming but delayed when the schools filed for bankruptcy.

When the schools filed for bankruptcy in November 2019, the Attorney General pledged to continue the fight to obtain the relief that was ordered by the Hennepin County District Court. The Attorney General’s Office successfully moved to have an independent trustee appointed to operate the schools and preserve assets. It also proceeded to notify and collect restitution claims for over 900 students who attended the criminal-justice program.

Terms of tentative agreement

If the agreement receives final approval and the schools’ owners meet their funding commitments, every one of the claimants who enrolled during the allowed period, 2009 to 2015, will have their federal student loan obligations related to their enrollment at MSB and Globe forgiven. The vast majority of those claimants will also receive a significant cash payment refunding them at or near 100% of what they paid to attend MSB/Globe’s criminal justice program.

In total, 920 former criminal-justice students will significantly benefit from this relief.

An additional $3.4 million in restitution will refund thousands of students who were signed up for the schools’ illegal loans. As part of the deal, the schools and their owners also must pay the U.S. Department of Education $7 million.

The agreement was also joined by a former criminal justice student, Tamara Blanchette, who brought a class action against the U.S. Department of Education alleging the agency improperly subjected her and other MSB and Globe students' federal loans to involuntary collection. Blanchette is represented by the National Student Legal Defense Network (“Student Defense”), a Washington D.C.-based nonprofit.

“The Department of Education is supposed to protect student borrowers like Tamara from unscrupulous institutions, not force them to repay fraudulent debts," Robyn Bitner, senior counsel at Student Defense, stated. “We are glad to join an agreement that ensures justice will no longer be delayed or denied.”

Contingencies

While the agreement has been reached in principle between all parties, including staff with the U.S. Department of Justice and U.S. Department of Education, the agreement, requires final confirmation by the federal government. The agreement also requires the owners to fund payments for restitution and to the Department of Education shortly after court approval.

If the federal government does not provide final approval or if the owners fail to fully fund the plan by the deadline, the agreement becomes null and void. If that occurs, the appointed trustee will proceed with a “liquidation,” which would involve selling off the schools’ assets and pursuing the schools’ owners to recover past transfers made to them before the bankruptcy filing. The State would receive up to $35 million from the proceeds of a liquidation, which could be used to compensate harmed students to the extent possible. . If the agreement’s terms are not met, the Attorney General will also continue to advocate for debt forgiveness for MSB/Globe students.

The agreement and the larger plan for reorganization filed by the trustee last night must also be approved by the bankruptcy court to become effective.

Other AGO action against fraud in for-profit education industry

The case began as part of an effort by state attorneys general across the United States to address fraud and abuse uncovered in the for-profit industry by a 2012 report by a U.S. Senate committee. Since then, the Minnesota Attorney General’s Office has taken numerous enforcement actions against for-profit schools and related companies that engaged in misconduct. Attorney General Ellison also led the fight for expanded debt relief for students left with worthless loans taken out to attend failed for-profit school Argosy University.

Information for former students and consumers

Students who have filed claims and are entitled to relief will be contacted by the Attorney General’s Office. Additional information about the case and resources for students who enrolled at MSB and Globe can be found at this webpage. Consumers with questions can contact the Office by calling (651) 296-3353 (Metro area) or (800) 657-3787 (Greater Minnesota).