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Feds file suit against ITT over pricey student loans

Restitution, injunction, fine sought in court

WASHINGTON — The Consumer Financial Protection Bureau filed suit Wednesday against a large, for-profit college chain alleging that it pushed students into high-cost private student loans knowing they would likely end in default.

ITT Educational Services Inc. projected a default rate of 64 percent on the loans it provided, some of which had interest rates as high as 16 percent, the bureau said. The Carmel, Ind.-based company has about 150 institutions in nearly 40 states, operating as ITT Tech, Daniel Webster College, and other entities. There are nine locations in Ohio, including one in Springfield Township.

A two-year degree program in which a majority of ITT students are enrolled costs about $44,000 — or $493 per credit hour, the CFPB said.

The lawsuit, filed in federal court in Indiana, is the bureau’s first action against a for-profit college. It seeks restitution for victims, an injunction against the company, and a civil fine.

Nicole Elam, a vice president with ITT, said in an email that the bureau’s claims are without merit, but Ms. Elam did not comment further on pending litigation.

The bureau said that because federal student loans don’t cover all tuition costs for most ITT students, most of the students attending the chain’s institutions face a “tuition gap.”

ITT provided a temporary, zero-interest loan to these students that typically had to be paid back during the first year — even though the company knew it was unlikely many students would be able to do so, according to the lawsuit.

Between July and December, 2011, ITT then pushed students into repaying the first-year loan money and funding their second-year gap with high-cost private loan programs, the lawsuit alleged.

“Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies,” according to a statement from the bureau.

“However, ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s ‘plan all along.’ ”

Richard Cordray, the CFPB’s director and a former Ohio attorney general, said the company estimated that 64 percent of its loans would end in default. ITT seems “to care more about dollar signs than diplomas,” he said.

The CFPB, in its complaint, also alleges that the chain misled students with inflated job-placement rates.

Those rates, the agency alleges, were based on selective data and incomplete information. The company, for instance, did not include former students who did not graduate — a common outcome, the agency said.

Only about 28 percent of students graduated from ITT schools in six years or less, the agency said — about half the rate of students enrolled in public institutions.

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