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More than 18,000 students who have gone to a for-profit college today will have a private loan of $ 168 million released.
The cancellation of the loan is part of a draft agreement between the Office of Consumer Financial Protection, the Attorneys General of 43 states and the District of Columbia and Student CU Connect (or CUSO) , a company that owned and managed private loans underwritten by ITT students. Technology. The agreement comes when the ITT bankruptcy court approved a settlement between CUSO and ITT's trustee in bankruptcy.
In its complaint, the CFPB described a system whereby ITT students were encouraged to incur high-interest private student debt, managed and maintained by CUSO, which the company and the school knew that they probably could not pay back. As part of the agreement, CUSO did not admit or reject most of the agency's requests.
Richard Bernard, a lawyer at Foley and Lardner, representing CUSO, wrote in an e-mail statement that CUSO was working in cooperation with the government and "congratulated" that the settlements would benefit ITT students.
CUSO "acted properly and in good faith by participating in and administering the student loan program," Bernard writes. "To the extent that ITT and its management engaged in unlawful conduct, CUSO and these other parties were victims of this misconduct and not incidental."
The CFPB's complaint reflects allegations against private lending programs launched by other for-profit, now-defunct colleges, which often make fun of students for the purpose of attracting and attracting federal funding. they brought to school.
The key element of the alleged scheme was to push students who could not afford to pay for higher education than they could with federal financial assistance. In 2008, ITT launched a temporary credit program that students could use to bridge the gap between their student loan coverage and the cost of tuition, according to the CFPB complaint. The program consisted essentially of an interest-free loan that students had to repay in a lump sum, approximately nine months after their enrollment at the school.
The complaint alleges that ITT financial aid staff precipitated students into this process and provided them with inaccurate or inaccurate information about the credit program. In many cases, this meant that the students did not know they had borrowed, according to the complaint. The court documents allege that ITT also knew that the students would not be able to repay the loan by the due date.
In the same year, ITT began implementing the CUSO loan program, according to the complaint filed with the CFPB. In 2009, ITT financial aid representatives began to lobby students for them to refinance their temporary loans with the CUSO loan program. ITT representatives told students that if they did not refinance, they would have to repay the credit and pay the next year's tuition deficit or leave school – something most could not afford , according to court documents.
Students who received a temporary credit were prequalified for the CUSO loan program, regardless of their credit history, according to court documents. According to the CFPB, about 79% of CUSO's portfolio was made up of these students.
Loans have been pushed on students although CUSO and ITT know that many borrowers would be unable to repay them, according to court documents. According to the complaint, for approximately 46% of borrowers whose credit score was less than 600, the effective interest rate of the loans was 13.75% or 16.25%.
Before starting the loan program, the models built by ITT and CUSO provided that 30% of the debt would be in default, according to court documents. Among borrowers with a credit score of less than 600, the projected default rate was 58.9%. In 2011, ITT's defaults consultant had forecast a gross default rate of 61%. Despite this estimate, ITT and CUSO continued the loan program, according to the complaint.
The agreement, which still requires the final approval of a judge, is the latest development of the ITT, which filed for bankruptcy in 2016. At the time The school was the second for-profit college to collapse in as many years among the charges attracting borrowers with inflated placement and graduation rates. More for-profit college chains closed under similar circumstances in the years that followed.
While students receiving CUSO loans will certainly appreciate debt relief, many of them are still at risk of being burdened by their federal student debt. Under pressure from activists as a result of the collapse of the Corinthian colleges, the first major for-profit college chain to fall in 2015, the Obama administration has streamlined the process used by borrowers to have their loans borrow. Federal studies disappear if they felt they had been scammed by their schools.
Betsy DeVos's Ministry of Education tried in vain to rewrite the rule governing this process, called Borrower Defense. Meanwhile, requests for debt cancellation, which must be approved by the Department, have dragged on the agency.
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