Former students of ITT Technical Institute were saddled with "massive debt" when the for-profit college pushed them toward high-interest loans. Now the defunct school must forgive $330 million in outstanding loan balances, state prosecutors said this week.
The Consumer Financial Protection Bureau, along with 47 state attorneys general, announced the multimillion dollar settlement Tuesday and said 43,000 former students will have their loans erased.
State prosecutors said ITT Tech created a special division in 2009 called Peaks, a debt-servicing entity designed to manage and offer student loans for students. ITT Tech's high tuition meant that many students needed a loan, with the school steering them to Peaks. The loans carried 16% interest rates and students struggled to repay, prosecutors said.
"Using a private lending scheme, ITT Tech saddled students with massive debt, exorbitant interest rates, and a worthless diploma," California's Attorney General Xavier Becerra said in a statement. "These students and former students can now wake up from this borrower's nightmare."
Under the settlement, Peaks must contact credit reporting bureaus and notify them of erased loans. Peaks must also inform borrowers their debt has been wiped out.
The settlement stems from a 2014 lawsuit the CFPB filed against Peaks. The complaint alleged that ITT Tech financial aid officers pushed students to Peaks loans. Financial officers called students at home, found them in the bookstore or student lounge, pulled them from classes and withheld class materials to make sure students listened to Peaks loan pitches.
Sky-high loan defaults
The bureau said Peaks and ITT Tech continued offering high-interest loans even though default rates eventually climbed to 94%.
"PEAKS allegedly knew, or was reckless in not knowing, that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them," the agency said in a statement Tuesday. "ITT students were left saddled with high cost loans, derogatory information on their credit reports, or both."
ITT Tech filed for bankruptcy in 2016 and closed all of its campuses around the U.S., which once numbered nearly 150. Tuesday's settlement comes more than a year after prosecutors announced a $168 million agreement with CUSO, another company created to manage student loans for ITT Tech students.
First published on September 16, 2020 / 11:26 AM
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