ITT Education Services, the erstwhile operator of the now defunct for-profit ITT Tech college chain, has reached a settlement with a federal consumer watchdog agency barring it from collecting on millions in private loans taken out by former students to pay for courses.
The agreement, announced by the U.S. Consumer Financial Protection Bureau on Monday, nominally requires the Indiana-based vocational education company to pay $60 million to settle allegations it improperly steered students into predatory loans they didn’t want or understand. Because ITT Education Services has been in bankruptcy since 2016, however, the federal government opted to forgo payment in exchange for guarantees that the institute and its loan holder and manager, Student CU Connect CUSO, will “cease enforcing, collecting, or receiving payments” on CUSO-administered debts.
The deal brings to an end over five years of federal litigation in the U.S. District Court for the Southern District of Indiana, where the Consumer Financial Protection Bureau first brought its suit amidst an Obama-era crackdown on for-profit colleges and universities. Government attorneys accused ITT Tech administrators of pushing costly short-term loans — some with interest rates as high as 16.25 percent — that they knew student borrowers couldn’t afford, resulting in default rates that exceeded 90 percent.
ITT Tech, which at one time operated 130 campuses and enrolled over 40,000 students nationwide, had long faced scrutiny for what students, authorities, and internal whistleblowers described as exploitative and manipulative treatment of low-income undergraduates.
In numerous civil lawsuits and regulatory complaints filed between 1998 and 2016, employees and former enrollees said staff falsified attendance records, inflated grade point averages, used high-pressure tactics to coerce students into borrowing money, and retaliated against insiders who opposed questionable practices.
Citing a loan default rate that dwarfed the school’s graduation rate, the U.S. Department of Education began a comprehensive audit of ITT Tech’s financial status in 2015 and one year later banned the institute from accepting students receiving federal tuition aid and doubled its surety threshold. Unable to meet those requirements, the college chain ceased operations, closed all of its locations, and filed for Chapter 7 bankruptcy protection, which normally requires liquidation of a company’s non-exempt property.
In June, a coalition of 43 state attorneys general, including Connecticut Attorney General William Tong, secured a $168 million payment from Student CU Connect CUSO for debt relief for over 18,000 former ITT students nationwide.
At the time, Tong said the settlement was necessary to “hold CUSO accountable for its participation with ITT in subjecting their students to unacceptable and abusive lending practices.”