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February 28, 2014

Student Loan Rip-off at ITT?

By Shah Gilani 

I’ve written and railed about rip-off student financial aid schemes here for years.

And based on all the very personal stories I’ve received, I know many of you are outraged as well – even more so because of your devastating first-hand experiences.

Make no mistake: For-profit education companies are (more often than not) “rip-off traps” which condemn unsuspecting students into indentured servitude to greedy companies’ bottom-lines.

Well, there may be a White Knight after all.  

The Beginning Of The End For The Student Rip Off Trap

His name is Richard Cordray and he’s the Director of the Consumer Financial Protection Bureau (CFPB).
This guy is smart, aggressive and has already smoked out some of Wall Street’s biggest scammers — including Fannie Mae, Bank of American and AIG.

Now he’s going after an even bigger scumbag company, filing a civil lawsuit against ITT Educational Services Inc.

In case you never heard of them, ITT Educational is one of the country’s largest for-profit educational services companies, providing undergraduate and degree programs through its ITT’s Technical Institutes and Daniel Webster College. In addition to its own schools, the company provides educational services to another 150 institutions in 40 states.

Among other allegations, Cordray’s suit claims the company offered a zero-interest loan, payable in full at the end of a student’s first academic year, assuming most students would never be able to repay it.  Facing delinquency, the students were then forced to take out “high-cost private student loans” from the company to rollover unpaid obligations and continue tuition payments.

Cordray said, “ITT kept students in the dark about its lending model that it freely shared with investors. In fact, we found that ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls.”

Most of the loans carry interest rates of 16% over their 10-year duration. Cordray likened the tuition charges to “financing your college education on your credit card.”

Not only are students burdened with onerous financial obligations at the ITT schools, those who wanted to transfer to less expensive schools didn’t know many of their ITT credits could not be transferred.

Of course, a spokeswoman for ITT said the college was prepared to defend itself against the CFPB allegations and claims.

In addition to the CFPB lawsuit, four state attorneys general said they’ve launched their own investigations and will take their own action. New Mexico filed suit against ITT’s nursing school. Illinois, Kentucky and Iowa are the other states investigating ITT. It’s highly likely other states will follow suit, as in lawsuits.

According to the American Banker, “The CFPB’s case was filed in federal court in Indianapolis, near where ITT is based. The lawsuit is seeking restitution for victims, a civil fine and an injunction against the company.”

This is just the beginning of states and the CFBP looking into for-profit education companies.

And it just might be the beginning of the end for ITT and some other rip-off for-profits, and who knows maybe some non-profit schools too.

Courtesy Shah Gilani at Wall Street Insights & Indictments (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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