A credit union that holds loans on thousands of prospective college students is suing an Indianapolis-based college-test-preparation company, alleging that it owes it more than $12 million.
Southeast Financial Credit Union's federal lawsuit also contends that The College Network is insolvent and its owners are illegally trying to shield remaining assets from creditors. The Franklin, Tennessee-based credit union holds about $35 million in loans taken out by about 10,000 of the college test preparation company's nationwide customers.
Indiana Attorney General Greg Zoeller already sued the company in June, saying it made personal loans for customers at high interest rates, but that relatively few people actually complete its program and go on to earn a college degree.
New York Attorney General Eric Schneiderman also sued the company, contending that its customers "were duped into buying expensive, inadequate study materials and access to 'academic advisors' who were falsely touted as experts."
College Network executive Mark Ivory said the company has not yet been served with the lawsuit, which was filed in Indianapolis, but vowed to fight the "unfair allegations."
"We will continue to support our customers, which are our main business function, and we will continue to defend our company against unfair allegations," Ivory wrote in a statement to The Indianapolis Star.
Southeast Financial contends The College Network's internet portal is the company's "sole remaining asset" and that the defendants are trying to move that to a newly formed company to avoid obligations their creditors.
The credit union has had a business relationship with The College Network since 2003, and was the largest supplier of personal loans to its customers.
Southeast Financial alleges that when it signed a contract extension with the company last year, it wasn't made aware that it was "insolvent, financially weakened by years of dwindling and slow sales and poor business performance."
The company's customers pay up front for years' worth of the company's online "learning modules." Those customers use personal loans with payments beginning immediately—not student loans with lower interest and deferred payments—because The College Network is not a school.
The College Network has been accused of using outright fraud and high-pressure sales tactics to sign up customers, often nurses, seeking to improve their professional lives, The Star reported. "Program advisers" working on commission came to Indianapolis for training and then fanned out nationally, signing up customers in places such as Starbucks restaurants and visiting the homes of prospective students, the newspsper said.
The College Network's headquarters is at 3815 River Crossing Parkway on the city's north side. The company was founded by CEO Gary Eyler in 1995.
Eyler, 67, is no stranger to legal troubles with the government. In the late 1980s, he and his former company, Carmel-based truck-driving school Continental Training Services Inc., were sued by the federal government for civil fraud. Continental operated Superior Training Services, the largest-truck driving school in the country at the time.
The U.S. Education department claimed in a 1988 lawsuit that it was entitled to $366 million from Eyler and Continental. It alleged Eyler falsified documents that made made students attending Superior eligible for federally backed education loans. Those loans represented the bulk of Superior's more than $50 million in annual tuition income, the suit said.
The suit also said the students received inadequate training, resulting in a default rate on loans of more than 50 percent, leaving taxpayers on the hook for the debt.
The company eventually went bankrupt and settled its case with the government. Eyler was forced to sell off several pieces of valuable Indiana real estate, including a 336-acre estate in Brown County and Meridian Hills home.
Eyler continued to have IRS troubles into the late 1990s related to the Continental case.