Office of the Attorney General
Attorney General Conway Concludes Investigation into Student Loan Company Involved with Bankrupt West Kentucky Law School

Press Release Date:  Monday, September 27, 2010  
Contact Information:  Allison Gardner Martin
Communications Director
502-696-5651 (office)

Kentucky Attorney General Jack Conway today announced an agreement with Student Loan Xpress, Inc. (SLX) that will result in an estimated $3.6 million reduction in the loan obligations for students who attended a now bankrupt West Kentucky law school.

"I am pleased we were able to conclude this investigation by getting significant loan forgiveness for students," General Conway said. "As we investigated this case over many months, we found dozens of students who were obligated to pay thousands of dollars in student loans for academic credits that didn't transfer. The lender also charged fees when it said it would not and required loan repayment when students were entitled to deferments because they were still in school. There was an overall pattern of abuse by the lender that ignored federal and state consumer protection requirements and put students in a financial bind before they even started their careers."

As a result of the Assurance of Voluntary Compliance (AVC) entered in Franklin Circuit Court, students of the law school who had SLX loans will have their overall loan amounts reduced and will be given an extended period of time before they are required to make payments. Students' loan indebtedness will not include any amounts for tuition and school fees for credits that were not transferred to another school; interest on the loans will be based on the reduced loan amounts and any capitalized interest will be removed from their loan accounts; and late fees for delinquent payments and certain loan fees will also be removed from borrowers' accounts.

The average loan reduction per student is $25,000. The loan reduction per student ranges from just under $1,000 to as much as $75,000. The amount of reduction is based on how many academic credits the students were able to transfer and how much money students borrowed in living expenses.

"This agreement will allow students to finish their studies before they must pay back loans and significantly reduces the loan principal by only requiring students to pay for credits that they transferred and living expenses," General Conway said.

"SLX cooperated fully in the investigation and we appreciate them working with us to correct this injustice," General Conway said.

Borrowers must apply to have their loan restructured pursuant to a claims process that will begin once the borrower receives a notification from SLX within the next 90 days. While the dollar amount of relief for each individual borrower will vary, the settlement is estimated to achieve an overall reduction of $3.6 million in the total principal that includes tuition, school fees, living expenses and loan fees. There will be additional interest savings to borrowers because of the reduction in principal and the restrictions on capitalized interest provided in the AVC.

"I appreciate retired Graves Circuit Judge John Daughaday and former student Jamie Rust for bringing this matter to our attention," General Conway said. "Their diligence and commitment to this issue helped our investigation."

Investigation into Student Loan Xpress

The Office of Attorney General obtained the settlement with SLX after alleging multiple misrepresentations in the company's marketing materials and loan application instructions, which SLX denies, including language that students would be able to defer repayment on their loans while in school and for nine months after leaving school. However, the fine print of the promissory notes limited the period of deferment to 33 months after the loan was disbursed. The effect of this 33-month cap was that holders of the loans required students to begin repaying their school loans while still in school or enter into "forbearance" - a loan status that effectively increased the amount of the borrowers' loans through repeated capitalization of interest.

"The terms of the loans were deceptive and made it very difficult and outrageously costly for students to continue their law school education after American Justice School of Law closed," General Conway said.

The Attorney General's investigation also revealed that the borrowers' promissory notes did not contain disclosures required by the Federal Trade Commission. In situations where a seller refers its customers to a specific lender, the "FTC Holder Rule" requires that consumers be made aware that the lender is subject to the same legal defenses as the seller.

"Without the holder clause," General Conway explained, "you get a situation where the seller gets the loan proceeds, goes out of business, doesn't deliver the product the buyer paid for, yet the buyer is obligated to repay the loan for something he or she never received. That is simply unfair."

Information for Students

American Justice School of Law and Barkley School of Law students with SLX Loans must complete necessary forms in order to obtain the relief available under the AVC. SLX will send those forms in an official packet via Certified Mail within 90 days. Loan reductions will be calculated for each student individually based upon a number of factors, including the number of credits they transferred and the amount borrowed for living expenses. The AVC may be viewed by visiting

History of American Justice School of Law

American Justice School of Law began offering classes in the fall of 2005, but failed to gain accreditation from the American Bar Association. A successor school, Barkley School of Law that took over in February 2008, closed in December 2008. It also was not accredited. Both law schools declared bankruptcy, leaving 127 students owing more than $7.5 million in SLX student loans incurred for many academic credits that could not be transferred to another school. In 2009, the Office of Attorney General began an investigation of the school's primary lender, SLX, for federal and state consumer protection violations.

The Assurance of Voluntary Compliance is not a finding or an admission of any violation by SLX but constitutes a legally binding resolution of the matter.