The federal consumer watchdog agency sued for-profit college chain Corinthian Colleges on Tuesday over an alleged predatory lending scheme, saying the company routinely deceived students and used illegal debt-collection tactics.
The company's shares plunged 30 percent after the announcement. Click here for the latest price.
The Consumer Financial Protection Bureau said Corinthian—which operates Everest, Heald and WyoTech schools—lured thousands of students to take out private loans to cover tuition costs by inflating job placement rates and paying employers to temporarily hire their graduates. The CFPB is seeking $500 million in student-relief aid.
"Today's lawsuit alleges that the schools owned by Corinthian Colleges, Inc. advertised their education as a gateway to good jobs and better careers. ... But Corinthian counted a "career" as a job that merely lasted one day, with the promise of a second day," the suit said.
The bureau said Corinthian charged more than five times the cost of similar programs at public colleges.
It also said the company used illegal debt collection tactics to strong-arm students into repaying the loans before they graduated.
The suit, which covers the period from July 21, 2011, to now, said Corinthian allowed its employees to routinely deceive and harass private student-loan borrowers, who were mostly from low income households.
The filing comes just months after the embattled firm reached a deal with the U.S Department of Education to sell more than 100 of its campuses and online programs and gradually wind down the rest.
As of June 30, 2013, the Santa Ana, California-based company had a student enrollment of 81,284 and operated more than 110 schools in the U.S. and Canada.
No one answered the phone at two numbers listed on the school's website.
—By CNBC's Karma Allen