The Consumer Financial Protection Bureau (CFPB) has filed suit against ITT Educational Services (ITT), accusing the national college chain of predatory lending, and laying down a stern warning to other for-profit colleges. The lawsuit marks the Bureau’s first public enforcement action against a company in the for-profit college industry. Richard Cordray, director of the Bureau, had this to say:
ITT marketed itself as improving consumers’ lives but it was really just improving its bottom line. We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default. Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.
ITT owns and operates more than 135 ITT Technical Institutes and Daniel Webster College. The company has more than 55,000 students at its campuses in 39 states and online. ITT’s tuition costs rank among the highest in the country in the for-profit industry, according to the Bureau. For example, earning an associate’s degree at ITT can cost more than $44,000 with bachelor’s degree programs costing up to $88,000. That is said by the Bureau to be significantly higher than the cost of similar degrees at a community college or a public four-year institution.
The Bureau’s complaint alleges that ITT encouraged new students to enroll at ITT by providing them so-called “tuition gap” funding with a zero-interest loan called “Temporary Credit.” This loan typically had to be paid in full at the end of the student’s first academic year. But the suit claims that ITT knew from the outset that many students would not be able to repay their balances or fund their next year’s tuition gap. It’s alleged in the lawsuit that between July and December 2011, ITT pushed students into repaying their temporary credit and funding their second-year tuition by taking out high-cost private student loans. It appears that students were rushed through the loan-application process without getting a fair chance to understand the obligations they were taking on.
It’s further alleged in the complaint that borrowers with credit scores lower than 600 – typical for many ITT students – paid 10 percent origination fees and interest rates as high as 16.25 percent. The complaint alleges further that ITT knew many loans would not be repaid, projecting a 64 percent default rate on its students’ private loans.
Source: USA Today
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