ITT Tech. Settles $330M ‘Deceptive’ Student Loan Lawsuit

A $330 million settlement has been reached in a lawsuit against ITT Technical Institute’s student loan servicer that is expected to forgive 35,000 students of their debts. 

The U.S. Consumer Financial Protection Bureau filed the lawsuit against PEAKS, the name of the ITT student loan program, Tuesday, the same day the settlement and resulting loan forgiveness was reached. 

“ITT unfairly pushed students into ITT Private Loans, which caused consumers substantial injuries that were not reasonably avoidable and were not outweighed by benefits to consumers or competition,” the CFPB said in the lawsuit. 

The legal action against the ITT loan program alleged “aggressive” and “high pressure tactics” in a revenue-generating scheme bilking some $330 million from an estimated 35,000 students, despite knowing default risks. 

“ITT knew that many students ultimately placed into ITT Private Loans were likely to default,” the CFPB said. 

The lawsuit alleges ITT Technical Institute faced a funding shortage from federal loans and made up the difference by pairing a “temporary credit” system with the PEAK loan program in 2009. 

The CFPB specifically cites ITT Technical Institute’s cash receipts reported in 2011, which showed 89% of its tuition came from federal loans, with 7% coming in from private loans, leaving a 4% shortfall.

These credits were designed to “cover the difference between the amount they could obtain in Title IV loans and grants and the cost of attending ITT,” the CFPB said in the lawsuit. 

These no interest loans, payable upon nine months of enrolling in one lump sum, were given in hasty fashion, the CFPB said. 

Students were misled “during rushed financial aid appointments controlled by Financial Aid staff who frequently provided students with incomplete or inaccurate information about these loans.”

The CFPB claims ITT Technical Institute staff had “unauthorized” access to student records online and in some instances signed e-documents without permission.

PEAKS knew “the majority of borrowers were likely to default on their loans” and was “reckless” when students were “pushed” into loans “they did not understand” or even “realize they had taken out loans at all,” the CFPB said in the lawsuit. 

ITT Technical Institute’s headquarters at one point were “admonishing” sites for this practice and reminded “not to create and electronically sign PEAKS loan documents on behalf of students,” the lawsuit states. 

“ITT instructed and incentivized its Financial Aid staff to use aggressive tactics such as calling students at home, finding them in the bookstore or the library or the student lounge, pulling them from class, barring them from class, enlisting the aid of other ITT staff (including instructors), and withholding course materials, diplomas, and transcripts,” according to the lawsuit. 

As a result, some students weren’t aware of the terms of the loan or even that they had one, the CFPB said. 

At the same time these “temporary credits” were offered, ITT Technical Institute formed the PEAK loan program, the CFPB claims, to “purchase, own, and manage” private loans offered to students.

Unlike federal student loans, these privately held loans charged interest rates based on credit scores. Rates for subprime borrowers were as high as 12.5% with an additional 10% origination fee added, according to the lawsuit. 

These interest rates applied to borrowers with credit scores under 600. About 46% of all ITT Technical Institute’s students fell under this category, according to the CFPB. 

Administrators with ITT Technical Institute even ran modeling on projected default rates, according to the lawsuit. They found 30% of the student body would default. In reality, according to the CFPB, that number was closer to 55%. 

The CFPB said ITT Technical Institute knew their students would likely default, but continued this practice to satisfy investors. 

ITT Technical Institute “knew the purpose of the PEAKS loan program was to convert Temporary Credit into revenue,” the CFPB said in the lawsuit. 

Eventually the rising defaults from these PEAK student loans forced ITT Technical Institute to make payments on the borrower’s behalf, CFPB claims. “A key feature” of PEAKS “was a guarantee” of payments to the servicer by ITT if “the asset/liability ratio” fell below an agreed threshold. 

The PEAKS program “would have demonstrated more clearly” the severe default rate if these payments were not made, according to the CFPB.

“Despite these red flags, ITT continued the PEAKS loan program, servicing and collecting on the loans, ensuring that ITT students faced the harmful consequences of the high cost debt,” the CFPB said. 

The for-profit ITT Technical Institute, with its 149 locations across the U.S., filed for bankruptcy in Sept. 2016.

Have you received an ITT student loan? Let us know in the comments below. 

Counsel representing the plaintiffs in this case are Thomas G. Ward, David Rubenstein, Cynthia Gooen Lesser, Jonathan Reischl, Manuel Arreaza and Maureen McOwen. 

The ITT Student Loan Forgiveness Lawsuit is CFPB v. PEAKS Trust, et al. Case No. 1:20-cv-02386-JRS-MJD, in the U.S. District Court for the Southern District of Indiana. 

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