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Peter Cox

State Supreme Court: Globe, MN School of Business made illegal student loans

Globe University
Globe University
Tim Post | MPR News file

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The Minnesota Supreme Court ruled Wednesday that thousands of loans Globe University and the Minnesota School of Business issued to students were illegal. The state's highest court also found the schools issued the loans without the proper license and didn't use lawful interest rates.

The colleges offered between $3,000 and $7,500 per loan, bearing interest rates between 12 and 18 percent, according to the ruling.

Attorney General Lori Swanson said in a statement the loans were issued to nearly 6,000 students since 2009.

Swanson said the for-profit education company referred to the product as a loan at least 45 times in their contracts with students, but argued in court it was a consumer credit plan. The court's opinion defined it as a closed-end loan, which under state law is required to have an interest rate not higher than 8 percent.

"We felt it was important for the Minnesota Supreme Court to give direction on the matter," Swanson said. "Many of the students who were enrolled in loans of up to 18 percent interest have not been able to find gainful employment with their degrees and are swimming in student loan debt."

Swanson said her office plans to seek a district court order that would declare the loans made on or after Jan. 1, 2009, to be null and cancelled. She also plans to ask the court to require Globe and the School of Business to refund borrowers for payments of principal, interest and other charges made.

In a statement, a representative of the schools said they were "disappointed" with the state Supreme Court ruling.

"The Minnesota Attorney General's unrelenting attack on two 140-year-old private career institutions has unnecessarily hindered student access to education and limited student choice," the statement read.

The ruling compounds an already tough few years for Globe University and Minnesota School of Business. The schools, which have shared ownership, lost a civil case in Hennepin County Court that found they had misrepresented students' ability to transfer credits and the school's law enforcement program.

The Minnesota Office of Higher Education subsequently decided not to allow the schools to register any new students in the state. In December, the U.S. Department of Education shut down the schools' access to federal student aid dollars.