The Consumer Financial Protection Bureau sent a jolt through the for-profit college industry this week when the federal agency sued ITT Educational Services Inc. for predatory lending practices, saying it would seek restitution for victims, a civil fine and injunctions against the company.
The CFPB accused ITT, which owns and operates ITT Technical Institute, of exploiting its students by pushing them into high-cost private loans the school knew likely would end up in default. Colleges are the beneficiaries of much of the loan money paid out for tuition, fees, books and other expenses. Schools receive the money, regardless of whether the student succeeds at school and graduates.
“ITT marketed itself as improving consumers’ lives, but it was really just improving its bottom line,” CFPB Director Richard Corday said in a statement. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default.”
The suit marks the first time the CFPB has taken action against a college in the for-profit business. The action comes one month after 13 states sent subpoenas to ITT and three other for-profit colleges, demanding documents about recruiting practices and financing.
An ITT spokeswoman declined to comment on the pending CFPB lawsuit, but told Reuters “we believe that the Bureau’s claims are without merit.”
ITT Considered a National Leader
ITT, based in Carmel, Ind., is considered one of the leaders in the for-profit college industry with more than 70,000 students spread across 140 schools in 35 states. The school’s website shows it predominantly offers career-focused degrees in seven areas, ranging from information technology to nursing.
Tuition at ITT is among the highest in the country in the for-profit industry, Corday said. A four-year degree from ITT can cost $88,000 and a two-year degree $44,000. The U.S. Department of Education said that 75 percent of students at for-profit schools borrowed money to pay the tab.
Students from for-profit colleges receive about $30 billion in federal loans every year. The problem at ITT is that federal loans don’t cover full tuition at the school. The CFPB’s suit claims that ITT enticed students to close the tuition gap with a zero-interest loan the school called “Temporary Credit.”
It was temporary because the loan terms said it had to be repaid by the end of the school year, even though ITT knew that wouldn’t happen, CFPB officials said. The CFPB said that when the students couldn’t repay the loan, they were pushed to convert it to high-cost, long-term loans. The CFPB accused ITT CEO Denise Ramos of telling investors that was the company’s plan all along.
Students Destined to Fail
Specifically, the suit alleges ITT acted improperly in four major areas:
- Financial aid staff pressured students into predatory loans.
- Threatening expulsion as a way to coerce students into taking out private loans and finishing their degrees at ITT. Since credits don’t transfer to most non-profit schools, transferring is not an option.
- Misleading students into thinking they would land a high salary job after graduating that could help repay the student loans.
- Pushing loans, despite its own projection of a 64 percent default rate for its students, far above the national average of 14.7 percent.
Although for-profit schools enroll just 13 percent of the students, they accounted for 46 percent of the student loan defaults over the last three years.
The Department of Education estimates that over the next 20 years, the average default rate for all for-profit colleges will be 49 percent.
“Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics,” Corday said.
Ironically, ITT Tech’s corporate philosophy posted on the school’s website reads: “Long-term integrity is worth far more than short-term profit.”
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at firstname.lastname@example.org.
2 Minute Read
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- Armour, S. (2014, February 26). Consumer Financial Protection Bureau Sues ITT. Online.wjs.com. Retrieved from http://online.wsj.com/news/articles/SB10001424052702304255604579407154068604132?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304255604579407154068604132.html
- N.A., N.D. Employment at ITT Tech. Retrieved from http://www.itt-tech.edu/employment.cfm