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Feds sue ITT Educational over loan practices

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ITT Educational Services Inc. is being sued by the U.S. Consumer Financial Protection Bureau over allegations the for-profit college chain engaged in predatory lending by pushing students into high-cost loans likely to end in default.

The agency said Wednesday it sued the Carmel-based chain in federal court in Indianapolis under the U.S. Consumer Financial Protection Act of 2010 and the Truth in Lending Act.

ITT’s tuition is among the nation’s highest among for-profit colleges with an associate’s degree costing as much as $44,000 and a bachelor’s degree $88,000, the agency said. While students can use federal loan programs to help cover the cost of their education, many students still require private loans to fill the gap, according to the CFPB.

The college chain targets low-income consumers who “can rarely afford to pay its high tuition out-of-pocket,” the agency said in its complaint filed in court in Indianapolis. “Therefore, ITT’s business model relies on convincing these consumers to obtain federal aid, mostly loans, to pay ITT.”

The bureau said ITT projected a default rate of 64 percent on the loans it provided, some of which had interest rates as high as 16 percent.

Students were encouraged to use private loans to repay temporary loans offered through the college chain, and students were “left in the dark about the fact that taking out these high-cost loans would be required to continue their studies,” the agency said in a prepared statement. "However, ITT's CEO revealed in investor calls that converting the temporary loans to long-term loans was the company's, 'plan all along.'"

ITT also misled students by overstating their job prospects and potential salaries, the agency said.

ITT stock fell 9 percent, or $3.23, on Wednesday afternoon, to $32.38 per share.

The CFPB, created in 2011 to regulate financial products, has said it’s preparing to tackle student debt, which has climbed to $1.2 trillion and is pervasive among former students at for-profit colleges. Richard Cordray, head of the consumer bureau and a former Ohio attorney general, said in written testimony to a House panel in January that the bureau has received thousands of complaints and comments about private student loans and debt.

“Corporations that own these colleges often seem to care more about dollar signs than diplomas,” Cordray said at a press conference Wednesday in Washington, D.C.

Years of federal pressure has taken a toll on the industry. ITT saw student enrollment drop from almost 85,000 in 2010 to 60,997 in October 2013. The company reported a loss of $11.6 million in its latest quarter.

Nicole Elam, a spokeswoman for ITT, said the college chain doesn’t comment on pending litigation “other than to say that we believe the bureau’s claims are without merit and that we intend to vigorously defend ourselves against the charges."

 ITT has more than 140 campuses in 35 states, including six in Indiana.

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  • ITT - Diploma Mill
    "ITT also misled students by overstating their job prospects and potential salaries, the agency said" Graduating from ITT in 2008, I have yet to hold a full time job for more than a year and six months, these employers like to hire you for 3 months and let you go when they are done. It makes me sick that I was duped into going to this thinking I would find my career path and be set for life. Well, not so much, I've been laid off numerous times, not to mention the debt I have because I can't remain employed willingly. Its a big diploma mill with its major in GREED!
  • Nothing New
    These for-profit schools preying on low income people is nothing new. 40+ years ago, with no father to advise me, I was taken in by a salesman for RETS Electronics School, a competitor of ITT (then called Howard Sams Technical Institute). Our only income was VA and SS, but my mother was given a contract which she signed. The "school" was in an old hotel where the homeless would often sleep in the doorways. The teachers were decent people but those in charge could care less about you as long as those payments kept coming in. I didn't stay long, thankfully.
  • Sad But True
    I also worked at ITT for a few years, and completely agree with this former employee's observations. ITT is for profit, not for students. Period. It's all about getting the guaranteed Federal money that first quarter. Nothing else matters. I'm a capitalist through and through, but ITT is nothing more than a predatory BUSINESS making money off of other people's misery. Selling the illusion of fulfilling these people's dreams. I have no idea how these people sleep at night, regardless of what it has afforded them in life...
  • LOL:
    ITT vs Notre Dame degree-LOL
  • Re: Patrick James
    Your analogy is decent but incomplete. No doubt college costs are way too high even at not for profit colleges. For profit is much worse. In your example a four year degree at IU all in (tuition, room and board, books, fees and expenses) is very close to that $88k at ITT that is only tuition and I assume books. There is no value comparison there at all. While costs are too high at for profit colleges their track record at getting graduates jobs blows away places like ITT. Up to parents and kids to put them in a program that will get them a job. So for profit is much much worse. When comparing apples and apples they cost much more than not for profit (and way more than a community college that does a much better job of getting graduates into the work force) and they do a horrible job of getting people jobs. They are riding off the backs of us taxpayers until we say enough is enough
  • Hope that "not for profits" are next in line
    Realistically, how are ITT's practices different than, say, a Notre Dame charging $60,000 PER YEAR for its degree, and letting that student graduate with a liberal arts degree, with no marketable skills? We have far too many "not for profit" institutions charging big time dollars, funded through loans, that, in turn, can't or won't get paid back. At least with ITT, the cost is only $88,000 for the bachelor's. At ND, it could be $240,000.
  • This has been going on way too long
    And the reason? Big political donations by the for profit colleges. They have lobbied very hard under the guise of "educational access" for students, when it's really access to federal loan money that these for-profit schools are after.
  • Regulation?
    I hate to admit it, but I was watching a "reality" show and the girl on it went to take an ACT at the college she wanted to attend. The test was actually given in the admission office. She didn't pass, but they took exception to her high school records and said that they had decided to admit her anyway. Funny thing was that the next thing they said was, "let's get you started on your federal loan application." Not sure if it was legit or not, since it was "reality" television, but it was pretty funny none the less. And I was at a college fair once and the there was a for profit college and the recruiter basically said, "If you can find a way to pay, we will make sure you get admitted." Makes you wonder how easy it really is to get the loans?
  • Who is surprised?
    People have known this locally forever. 'For-profit' schools like this live off the backs of taxpayers and need to be put out of business. There was a recent report in Washington about the same industry taking advantage of veterans.
  • Stick with a not for profit education!
    This is hardly breaking news, there is tons of research that shows (compared to students attending not for profit institutions), students attending for-profit universities are (a.) less likely to graduate and (b.) more likely to have college debt for a longer amount of time. It's unfortunate that for-profit institutions are perceived as providing opportunities for non traditional students and yet ultimately take advantage of the majority by focusing on their profits and neglecting to put in place helpful parameters and programs that assist their students in reaching graduation and achieving a job to help pay down the student debts they owe due to their education.
  • ITT's CEO a Thief
    As a former employee of the top brass at ITT, I can tell you the monumental pay of the top administration is GREED driven. The school of thought is not how to help the students, but how many students can pay and how much. Go to their parking lot in Carmel and look at the BMW's, top of the line Mercedes and Lexus vehicles. Most are paid for by the company as well. Kevin Modany does not care about anyone but himself and is a pure megalomaniac.
    • Outrageous
      The costs noted to get a degree is alarming. For PROFIT run a muck!

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