A new settlement tied to the now defunct for-profit ITT Technical Institute school would erase $330 million in private student debt owed by about 35,000 former ITT students.
National scale regulationannounced Tuesday by the Consumer Financial Protection Bureau (CFPB) and state attorneys general from 47 states and the District of Columbia, hopes to clear debt owed by former ITT students to a Deutsche Bank-funded program called “PEAKS Trust”.
The ITT Technical Institute filed for bankruptcy in 2016 and closed all campuses, affecting 149 sites and around 40,000 students, amid lawsuits and investigations into allegations predatory lending practices.
“This settlement brings long-awaited justice to former ITT students who were pressured into predatory student loans that ITT and its associates predicted would never be able to repay,” Eileen Connor, chief legal officer of Project on Predatory Student Lending at Harvard Law School. Legal Services Center, which represents some former ITT students, told Yahoo Finance in a statement.
“All of ITT’s debt should be forgiven, including federal student loans,” Connor added.
The settlement stated that PEAKS would not only repay the loans, but also stop collecting them and require credit reporting agencies to “delete information relating to PEAKS loans.” Borrowers will also receive a notice that their debt has been paid.
The CFPB noted that this is the agency’s third settlement regarding ITT’s private student loan programs. Previously the CFPB had settled with CUSO, another company that handled private loans for ITT students, clearing $168 million in debt for borrowers. The CFPB had also reached a $60 million legal settlement with ITT in 2019 to refer students to private loans.
‘I got a four-year degree that’s worth nothing’
During its years of operation, ITT students have been offered two private student loan programs – CUSO and PEAKS.
PEAKS loans, which were offered to students from 2008, were intended to cover the tuition gap between the amount of federal student aid and the total cost of their education.
In 2014, the CFPB filed a lawsuit against ITT, arguing that the school “engaged in unlawful acts and practices to coerce students into taking out private student loans for the purpose of improving the appearance of ITT’s financial statements and its position with investors”.
The CFPB claimed that ITT knew the default rate on these loans “would be high” – default rates in reality were over 94% for CUSO loans and 80% for PEAKS loans. Yet these programs continued, according to the CFPB, “in order to temporarily improve ITT’s balance sheet.”
A former ITT student, who had his federal student loans canceled, is also pursuing a lawsuit against Navient to have his private student loans — not CUSO or PEAKS — erased due to school fraud. The trial is ongoing.
“I didn’t have a good education – I have a four-year degree that is worthless,” the borrower said in a previous interview. “From 2010 to now, it’s been horrible.”