A private, for profit college chain expected most of its students wouldn’t finish their degrees, and nearly two-thirds would default on loans, allowing the school to keep millions in federal tuition aid while charging students 16 percent interest, a federal watchdog alleged Thursday.
“(It’s) like financing your college education on your credit card,” said Consumer Financial Protection Bureau chief Richard Cordray while announcing his agency had sued ITT Educational Services, which operates ITT Tech and a host of other schools in 149 locations around the country. Cordray didn’t mince words in the announcement.
Sign up for Bob Sullivan’s free email newsletter.
“(ITT’s) own analysis projected a default rate of 64 percent on these loans – key information that was never shared with the borrowers,” he said. “The result was that while many of the students got poorer, the investors and shareholders got richer.” Two-year degrees from the schools, which target low-income students, cost about $45,000, the CFPB said. Only 28 percent of students graduated within six years.
ITT, in a statement to the Reuters news service, denied the accusations.
“We believe that the bureau’s claims are without merit and we intend to vigorously defend ourselves against those charges,” Nicole Elam, a spokeswoman for ITT, told Reuters.
Students who couldn’t fund their entire education with federal aid were given temporary interest-free loans that quickly converted to high-interest loans, the CFPB said. Aggressive tactics were used to force students into pricey financial products.
“ITT staff of campus financial aid offices .. who were compensated based in part on how many students they were able to force into these private loans … engaged in a variety of aggressive tactics, such as pulling students from class or withholding course
materials or transcripts, to get those students to sign up for these private loans,” the lawsuit says.
For-profit schools and their lending mechanisms have attracted negative attention for years, but have only recently landed in the CFPB’s regulatory portfolio. Cordray promised more actions against other for-profit schools.
“(I have) grave concerns about many of the schools operating in this sector,” he said.
A copy of the lawsuit against ITT is available at the CFPB’s website.
Sign up for Bob Sullivan’s free email newsletter.
Be the first to comment