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.