Debt relief is coming for thousands of former students of ITT Technical Institute, a private for-profit college that abruptly closed all of its branches in 2016, including ones in Spokane Valley, Seattle and Everett.
The Consumer Financial Protection Bureau and a coalition of 44 states and Washington, D.C. said Friday they had reached a settlement with Student CU Connect LLC, a lender that worked closely with ITT Tech to issue high-interest student loans that most borrowers could not afford to repay.
Loans with annual interest rates of up to 16.25% were given to students with subpar credit scores, who made up nearly half of all borrowers, the Wall Street Journal reported. Regulators and attorneys general alleged the school and the lender knew, or should have known, that many students did not understand the terms and conditions of their loans.
Under the settlement, the lender, abbreviated CUSO in court filings, must immediately stop collecting on all outstanding loans and discharge the remaining balances.
Nationwide, more than 18,000 former ITT Tech students will receive debt relief totaling $168.2 million. Of that, about $5.1 million will go to 538 students in Washington, including some who were left adrift after the closure of the Spokane Valley branch.
In a news release, Washington Attorney General Bob Ferguson said CUSO issued loans only to ITT Tech students between 2009 and 2011, even after internal projections showed more than 60% of borrowers would default. After the school’s closure, it projected the default rate would exceed 90%.
“For honest lenders, a borrower’s ability to pay back a loan matters,” Ferguson said in the news release. “ITT Tech and CUSO were only interested in increasing their bottom line at their students’ expense. They issued private loans they knew students could not afford in order to access their federal loan dollars. This was a scam, and students deserve this relief.”
On Friday, a lawyer representing CUSO told the Wall Street Journal that the lender “acted properly and in good faith in entering into and administering the student loan program.”
ITT Tech shut down after the U.S. Department of Education banned the school from enrolling new students receiving federal student loans. That was part of a crackdown on predatory practices by for-profit colleges that also led to the liquidation of Corinthian Colleges Inc.
The Wall Street Journal reported that ITT Tech’s closure forced more than 40,000 students at nearly 150 campuses in 38 states to look for another school and left many with large student loans. The Spokane Valley branch had 685 students when it closed.
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