Former students of defunct ITT Tech to receive $330 million in private student-loan forgiveness
By DANIELLE DOUGLAS-GABRIEL | The Washington Post | Published: September 15, 2020
Forty-eight state attorneys general and the Consumer Financial Protection Bureau have secured more than $330 million in private student-loan forgiveness for 35,000 former students of ITT Technical Institute.
A judgment order entered Tuesday puts to rest a 2014 lawsuit accusing the defunct for-profit chain of steering students into predatory loans. PEAKS Trust, a private loan program run by ITT Tech and affiliated with Deutsche Bank entities, has agreed to forgo the collection of the outstanding education debt from ITT Tech students. It will also ask credit-reporting agencies to delete references to those loans from the credit reports of affected borrowers.
Eligible borrowers will be notified by PEAKS or their loan servicer and need to do nothing to receive forgiveness. At least 1,100 former ITT Tech students in Maryland will receive relief, while 1,840 borrowers in Virginia will have their private loans canceled.
"Maryland students were deceived when they were pressured into taking on these predatory loans," Maryland Attorney General Brian Frosh, a Democract, said in a statement Tuesday. "PEAKS will be required by this settlement to provide debt relief to Maryland students who we allege were misled while they were working hard to further their education."
ITT Tech created two in-house student-loan programs as private lenders retreated from the market at the height of the 2008 financial crisis. Banks stopped extending credit to students at for-profit colleges, because of their historically high default rates.
ITT Tech issued students "temporary credits" to cover remaining tuition after federal and private student loans were taken into account. Some former students said the credits were marketed as grants, while others said they were told the credit would not have to be repaid until six months after graduation. But when the temporary credit became due, ITT Tech allegedly pressured students into accepting loans with double-digit interest rates from PEAKS.
According to the complaint, students said they were pulled out of class or threatened with expulsion if they refused to accept the loan terms. Many of the former students lacked the means to continue their education and said they felt there were no other options than to accept the loans. Eighty percent of the loans fell into default as students could not keep up with payments.
Even as students began defaulting in great numbers around 2011, ITT Tech continued issuing the high-cost loans. The tactics landed the company's top brass in the crosshairs of the Securities and Exchange Commission. The federal agency settled fraud cases in 2018 against former ITT chief executive Kevin Modany and former chief financial officer Daniel Fitzpatrick for allegedly deceiving investors about high rates of late payments and defaults on student loans backed by the company.
The SEC said executives made secret payments on delinquent accounts to delay defaults instead of disclosing the tens of millions of dollars in impending losses to investors. Executives assured investors in conference calls that the programs were performing well, while ITT's obligations to pay out on soured loans began to balloon, according to that complaint.
Before shutting down in 2016, ITT Tech was being investigated by more than a dozen state attorneys general and two federal agencies for alleged fraud, deceptive marketing or steering students into predatory loans. That legal morass led an accrediting body to threaten to end its relationship with the chain, which resulted in the Education Department curtailing ITT's access to federal student aid.
Days after closing 137 campuses and leaving 35,000 students and 8,000 employees in the lurch, the company filed for bankruptcy protection to liquidate its business.