The Consumer Financial Protection Bureau filed a federal lawsuit against a well-known for-profit college chain, alleging the company exploited its students and pushed them into high-cost private student loans that were likely to end in default.
The complaint [PDF] charges that between 2009 and 2011 ITT Educational Services, Inc., pressured students into predatory loans and mislead students on future job prospects and salaries, CFPB director Richard Cordray announced during a news conference Wednesday.
The suit seeks restitution, a civil fine, and an injunction against the for-profit college chain.
“ITT marketed itself as improving consumers’ lives but it was really just improving its bottom line,” CFPB Director Richard Corday said in a news conference Wednesday. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default. Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”
The CFPB’s lawsuit alleges that between July 2009 and December 2011, ITT encouraged students to enroll by providing them with a zero-interest loan called “Temporary Credit.” The credit was used to close the tuition gap between a student’s federal aid and the school’s high tuition rate.
Typically, the Temporary Credit had to be paid in full at the end of the student’s first academic year. When students were unable to repay their first year Temporary Credit, ITT allegedly pushed high-cost private student loan programs to cover the costs of repayment and second-year tuition gap.
The suit alleges that ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s “plan all along.”
The Indiana-based technical education school, which enrolls tens of thousands of student online and at its 150 institutions, has one of the highest tuition costs among the country’s for-profit colleges. Earning an associate’s degree at the school can cost more than $44,000, while a Bachelor’s degree program can cost $88,000.
The suit also alleges that ITT’s representations led students to think they would land jobs with enough salary to repay their private student loans.
“This is truly an American tragedy,” Cordray said. “Students may think they are climbing a ladder to success when instead they are getting knocked down, crushed by student debt that does not help them gain a better job or a better life.”
Attorneys general from Illinois, Iowa, Kentucky, and New Mexico are conducting investigations into major for-profit colleges, including ITT.
“Some of these colleges are thriving on selling a dream to someone…once the ink is dried on the financial aid paperwork the nightmare begins,” Kentucky Attorney General Jack Conway said during the conference. “We will be working tirelessly to be certain that the industry as a whole understand their business is education and not just flattering the bottom line.”
Wednesday’s complaint is the first action the CFPB has taken against a company in the for-profit college industry. However, for-profit colleges have come under greater scrutiny in the last several years. The Government Accountability Office has conducted investigations into a number of schools that use high-pressure enrollment tactics and misleading promises to attract students.
Earlier this month, Consumerist reported on a federal lawsuit filed by former employees of accusing the Harris School and its parent company, Premier Education Group, of misleading students — who paid more than $10,000 a year for various programs — about career prospects, and falsifying records to enroll students and keep them enrolled in order to continue receiving government grant and loan dollars.
Last October, the California Attorney General filed suit against Corinthian Colleges, Inc., the operators of 111 North American campuses and three online programs, claiming that it lied to students about the prospect of job-placement and to investors about the success rate of graduates.
In December, a court ordered a for-profit school in Kentucky to pay $1,000/day for avoiding a subpoena related to the state’s investigation into for-profit National College schools.