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A court ruling means thousands may not have to pay student loans

The loans may not have to be repaid.

Things are going from bad to worse for a pair of for-profit colleges based in Minnesota. The latest blow to Globe University and Minnesota School of Business (MSB) is a state Supreme Court ruling that says the student loans they made for years were illegal.

In a ruling handed down Wednesday (read it here) the high court said Globe and MSB, which have the same owners, were illegally making loans without a license and were gouging students by charging interest rates of up to 18 percent.

The schools had argued they weren't making loans, they were extending credit to students. It's an important distinction because Minnesota law caps interest on loans at 8 percent, but allows up to 18 percent on a credit line.

While lower courts agreed with the schools, the Supreme Court rejected their argument and agreed with the Minnesota Attorney General who had filed the lawsuit. The justices said the financial aid Globe and MSB were offering was not an open-ended credit line, it was a loan. Which meant they needed a license and could not charge interest over 8 percent.

What happens now?

 After declaring the loans illegal, the Supreme Court sent the case back to a District Court to sort out what should happen next.

Attorney General Lori Swanson tells FOX 9 there were as many as 6,000 loans worth up to $20 million. Swanson said she will ask the District Court judge to rule that the loans don't have to be repaid. She will also ask that anybody who did repay them get their money back with interest, the Star Tribune says.

A downward spiral for the schools

This isn't the first time Minnesota has taken Globe and MSB to court.

Last year a court agreed with the state that the schools were guilty of fraud for misleading criminal justice students about the job prospects a diploma would give them.

After the fraud ruling, the U.S. Education Department said the schools couldn't take part in federal student loan programs anymore. Globe and MSB are appealing that decision but in the meantime they closed all 19 of their campuses in Minnesota, Wisconsin, and South Dakota.

A representative of the schools told MPR News Wednesday's Supreme Court ruling was disappointing, adding: "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."

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