A private loan program ran by the now defunct for-profit ITT Technical Institute, which closed its Connecticut and other U.S. campuses in 2016 after declaring bankruptcy, has agreed to provide $330 million in debt relief to former students who were unable to repay their loans, Connecticut Attorney General William Tong announced Wednesday.
Of that amount, $292,874 will go to former ITT Tech students in Connecticut as part of a settlement with 48 attorneys general and the federal Consumer Financial Protection Bureau.
The settlement is with PEAKS Trust, a private loan program run by ITT and affiliated with Deutsche Bank entities. 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.
“This settlement holds PEAKS Trust accountable for its predatory lending practices and the damage it has done to students across the nation,” Tong said. “Thirty-nine Connecticut students enrolled in ITT Tech to seek an education, but were instead given debt and empty promises,” Tong said. “Students’ hopes and dreams were preyed upon and this settlement should serve as a strong reminder that such lending practices will not be tolerated.”
PEAKS was formed after the 2008 financial crisis when private sources of lending available to for-profit colleges dried up, Tong said. ITT developed a plan with PEAKS to offer students temporary credit to cover the gap in tuition between federal student aid and the full cost of the education.
Court records say ITT and PEAKS knew or should have known that the students would not be able to repay the temporary credit when it became due nine months later. 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, Tong said.
When the temporary credit became due, ITT pressured and coerced students into accepting loans from PEAKS, which for many students carried high interest rates, far above rates for federal loans, Tong said.
Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the loan terms, court records said. Many of the ITT students were from low-income backgrounds and were left with the choice of enrolling in the PEAKS loans or dropping out and losing any benefit of the credits they had earned, because ITT’s credits would not transfer to most schools, court records said.
The default rate on the PEAKS loans is projected to exceed 80%, 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.
Under the settlement, PEAKS has agreed that it will forgo collection of the outstanding loans and cease doing business.
