Feds file suit against for-profit college chain

Published on NewsOK Modified: February 26, 2014 at 2:56 pm •  Published: February 26, 2014
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WASHINGTON (AP) — 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.

Tuition at the chain's colleges can go as high as $88,000 for a bachelor's degree and $44,000 for an associate's degree, according to the bureau.

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 she wouldn't 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.'"