44 AGs join settlement over for-profit school’s lending
DES MOINES — Attorney General Tom Miller has secured an agreement to obtain $1,358,754.40 in debt relief for 143 former ITT Tech students in Iowa as part of a 44-state settlement. Nationally, the settlement will result in debt relief of more than $168 million for 18,664 former ITT students.
The settlement is with Student CU Connect CUSO, LLC, a credit union service organization that offered loans to finance students’ tuition at ITT Tech, the failed for-profit college. ITT filed bankruptcy in 2016 amid investigations by state attorneys general and following action by the U.S. Department of Education to restrict ITT’s access to federal student aid. The CUSO Loan program originated approximately $189 million in student loans to ITT students between 2009 and 2011.
A related settlement between the CUSO and the U.S. Bankruptcy Trustee was approved this week. The attorney generals’ settlement is also contingent on federal court approval of a related settlement between the CUSO and the federal Consumer Financial Protection Bureau.
“This settlement holds CUSO accountable for its participation with ITT in subjecting students to abusive lending practices,” Miller said. “It also provides relief to Iowans who attended ITT Tech and incurred debts for a questionable education that they could not repay nor discharge.”
ITT had operated campuses in Des Moines and Cedar Rapids.
The attorneys general alleged that ITT, with CUSO’s knowledge, offered students temporary credit upon enrollment to cover the gap in tuition between federal student aid and the full cost of the education. The temporary credit was due to be repaid before the student’s next academic year, although ITT and CUSO knew or should have known that most students would not be able to repay the temporary credit when it became due. Many students complained that they thought the temporary credit was like a federal loan and would not be due until six months after they graduated.
When the temporary credit became due, however, ITT pressured and coerced students into accepting loans from CUSO, which for many students carried high interest rates, far above rates for federal loans. Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the loan terms. Because students were left with the choice of dropping out and losing any benefit of the credits they had earned — ITT’s credits would not transfer to most other schools — most students enrolled in the CUSO loans.
Neither ITT nor CUSO made students aware of what the true cost of repayment for the temporary credit would be until after the credit was converted to a loan. Not surprisingly, the default rate on the CUSO loans was extremely high (projected to exceed 90%) due to both the high cost of the loans as well as the lack of success ITT graduates had getting jobs that earned enough to make repayment feasible. The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.
Under the settlement, the CUSO, under threat of litigation, has agreed that it will forgo collection of the outstanding loans. The CUSO, which was organized for the sole purpose of providing the ITT loans, will also cease doing business. Under the redress plan, CUSO’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. The settlement also requires the CUSO to supply credit reporting agencies with information to update credit information for affected borrowers.
Students will need to do nothing to receive the debt relief. The notices will explain their rights under the settlement. Students may direct questions to the Consumer Financial Protection Bureau at (855) 411-2372.
In addition to this settlement, Attorney General Miller obtained $1,424,662 in debt relief for 715 former students of Career Education Corp. in a January 2019 settlement.