Va. attorney general secures $15.3M settlement for former ITT Tech students
Students pressured into taking out loans they couldn't repay, according to settlement
Virginia Attorney General Mark Herring secured an agreement to obtain $15.3 million in debt relief for at least 1,840 former ITT Tech students in Virginia as part of a settlement including 47 additional attorneys general and the federal Consumer Financial Protection Bureau, his office announced Tuesday. The entire settlement is approximately $330 million for 35,000 borrowers who have outstanding balances.
ITT Tech (a for-profit technical institute) filed for bankruptcy in 2016 amid investigations by state attorneys general and action from the U.S. Department of Education to restrict ITT’s access to federal financial aid. Before it closed in 2016, it was one of the largest for-profit educational institutions in the U.S., with 130 campuses.
The settlement is with private loan program PEAKS Trust, which was run by the college and affiliated with Deutsche Bank entities. It was formed following the 2008 financial crisis as private lending sources for for-profit colleges dried up. ITT developed a plan with PEAKS to offer students temporary credit to fill the tuition gap between federal student aid and the full education cost. The groups knew or should have known students would not be able to pay for the temporary credit when it became due nine months later, according to the settlement. Students thought that the temporary credit was similar to a federal loan in that it wouldn’t be due until six months after graduation, according to the settlement.
“Student loan debt continues to be a significant burden to Virginians and their families across the commonwealth,” Herring said in a statement. “As attorney general, I am committed to protecting Virginians from unscrupulous for-profit schools and shady lenders who try to pressure, abuse and exploit student loan borrowers. I am glad we were able to reach this agreement that I hope will alleviate some of the financial pressure on Virginians who were taken advantage of by this scheme.”
Students were expected to accept loans from PEAKS, which loaned money at high interest rates to many students, when the temporary credit was due, according to the settlement agreement. The settlement says that ITT would pull students from classes and threaten to expel them if they did not accept the loans. It’s expected that the default rate on the PEAKS loans will exceed 80% due to the cost of the loans and graduates not being able to repay them.
PEAKS agreed under the settlement to forgo collection of the outstanding loans and cease business operations. It will send notices to borrowers about the canceled debt and cancel automatic payments. PEAKS also must give updated credit information for affected borrowers to credit reporting agencies.
Affected students do not need to do anything to receive the debt relief. They will receive notices that explain their rights under the settlement. Students can contact PEAKS or the Consumer Financial Protection Bureau with questions.