More than 1,300 students who were enrolled at now-closed ITT Technical Institute campuses in Indiana are eligible for nearly $10 million in student loan forgiveness, the state’s attorney general announced Tuesday.
Indiana’s share of a $330 million national settlement follows investigations by several attorneys general over student loans offered by the for-profit school. Attorney General Curtis Hill said 1,354 former students in Indiana will get debt relief.
The 47 attorneys general and the Consumer Financial Protection Bureau reached the settlement with PEAKS Trust, which ran a private loan program for ITT Tech. According to the agreement, PEAKS acknowledged coercing students into taking out high-interest loans and has agreed to forgive outstanding loans and for as many as 35,000 former ITT students overall.
“This settlement ensures that former ITT Technical Institute students are no longer subjected to the abusive lending practices of PEAKS Trust,” Hill said in a statement. “We hope this result eases the financial stress that so many former students have undoubtedly endured.”
ITT Tech filed for bankruptcy and closed its campuses in 2016, including in Indianapolis, South Bend, Fort Wayne and Newburgh. The college chain’s parent company, ITT Educational Services Inc., was based in Carmel.
The judgment order entered Tuesday puts to rest a 2014 lawsuit accusing the defunct for-profit chain of steering students into predatory loans. PEAKS Trust, which was affiliated with Deutsche Bank entities, agreed to forgo the collection of the outstanding education debt from ITT Tech students. It will also ask credit-reporting agencies to delete references to those loans from the credit reports of affected borrowers.
Eligible borrowers will be notified by PEAKS or their loan servicer and need to do nothing to receive forgiveness.
ITT Tech created two in-house student-loan programs as private lenders retreated from the market at the height of the 2008 financial crisis. Banks stopped extending credit to students at for-profit colleges, because of their historically high default rates.
ITT Tech issued students “temporary credits” to cover remaining tuition after federal and private student loans were taken into account. Some former students said the credits were marketed as grants, while others said they were told the credit would not have to be repaid until six months after graduation. But when the temporary credit became due, ITT Tech allegedly pressured students into accepting loans with double-digit interest rates from PEAKS.
According to the complaint, students said they were pulled out of class or threatened with expulsion if they refused to accept the loan terms. Many of the former students lacked the means to continue their education and said they felt there were no other options than to accept the loans. Eighty percent of the loans fell into default as students could not keep up with payments.
Even as students began defaulting in great numbers around 2011, ITT Tech continued issuing the high-cost loans. The tactics landed the company’s top brass in the crosshairs of the Securities and Exchange Commission. The federal agency settled fraud cases in 2018 against former ITT chief executive Kevin Modany and former chief financial officer Daniel Fitzpatrick for allegedly deceiving investors about high rates of late payments and defaults on student loans backed by the company.
The SEC said executives made secret payments on delinquent accounts to delay defaults instead of disclosing the tens of millions of dollars in impending losses to investors. Executives assured investors in conference calls that the programs were performing well, while ITT’s obligations to pay out on soured loans began to balloon, according to that complaint.
Before shutting down in 2016, ITT Tech was being investigated by more than a dozen state attorneys general and two federal agencies for alleged fraud, deceptive marketing or steering students into predatory loans. That legal morass led an accrediting body to threaten to end its relationship with the chain, which resulted in the Education Department curtailing ITT’s access to federal student aid.
Days after closing 137 campuses and leaving 35,000 students and 8,000 employees in the lurch, the company filed for bankruptcy protection to liquidate its business.