The Consumer Financial Protection Bureau has filed a lawsuit against ITT Educational Services, Inc., accusing the for-profit college of predatory student lending.
The company lured students with misleading claims about future job prospects, then hurried them through financial aid applications without fully explaining terms, the bureau said.
The lawsuit accuses ITT of maneuvering students into these loans although it knew a majority of students would default on them, projecting a default rate of 64 percent.
The CFPB alleges that ITT offered new students a zero-interest loan to help cover first-year tuition, a loan which typically had to be paid back in full by the end of the academic year. ITT would then offer funding to pay back that loan and fund the second year of study through high-cost private student loan programs.
Some of the private student loans included 10 percent origination fees and interest rates as high as 16.25 percent, the bureau said. CFPB Director Richard Cordray compared this kind of loan to “financing your college education on your credit card.”
ITT students who wished to transfer to a more affordable school found it difficult to do so because ITT credits do not transfer, Cordray said.
The CFPB’s lawsuit was filed in federal court in Indianapolis, near ITT’s Carmel, Ind., headquarters. The CFPB is seeking restitution for victims, a civil fine, and an injunction against the company.
“We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default,” Cordray said in a press release. “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.”
This is the CFPB’s first lawsuit against a for-profit college, and Cordray hinted that there were more to come. “Our action today is just the first step the Consumer Bureau is taking to address consumer issues in the for-profit college market,” Cordray said.
ITT called the lawsuit “an aggressive attempt by the bureau … to extend its jurisdiction into matters well beyond consumer finance,” promising to “vigorously contest the bureau’s theories in court.”
ITT operates 149 locations in 38 states, offering associate’s and bachelor’s degree programs.