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.
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
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.
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.
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
The lawsuit is
the latest in a string of actions targeting the for-profit college
industry, which has among the highest student loan default rates and
lowest graduation rates in higher education and has faced criticism for
its recruitment tactics. Attorney generals in California, Massachusetts,
Colorado, New York, and Illinois also are pursuing action against various
for-profit institutions, Richard Cordray, director of the bureau, told
reporters on a conference call Wednesday.
colleges could also be hurt by "gainful employment" regulations expected
to be proposed soon by the Education Department that would measure the
ability of students to get a job or repay their loans after attending job
training programs. Federal student aid could be revoked from programs
On Capitol Hill,
Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor
and Pensions Committee and other Democrats have pushed for more oversight
of the industry, which Republicans object to. An investigation by Harkin's
committee found that between 2008 and 2009, more than a million students
started college attending companies reviewed by the committee, but by
2010, half had left school without a certificate or degree.
colleges saw an explosion in growth last decade but their enrollments have
since declined. Proponents of these programs say they provide valuable job
training and flexibility through distance learning and by other means that
many students like— particularly those who are nontraditional.