Attorney General Curtis Hill has secured an agreement to obtain nearly $10 million in debt relief for 1,354 former ITT Technical Institute students in Indiana as part of a settlement in partnership with 46 other states, the District of Columbia and the federal Consumer Financial Protection Bureau.
The settlement is with PEAKS Trust, a private loan program run by the for-profit college and affiliated with Deutsche Bank entities. PEAKS was formed after the 2008 financial crisis, when private sources of lending available to for-profit colleges dried up. ITT developed a plan with PEAKS to offer students temporary credit to cover the gap in tuition between federal student aid and the full cost of the education.
When the temporary credit became due, ITT pressured and coerced students into accepting loans from PEAKS, which for many students carried high interest rates, far above rates for federal loans. Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the loan terms.
Many of the ITT students were also from low-income backgrounds, and were left with the choice of either enrolling in the PEAKS loans or dropping out and losing any benefit of the credits they had earned. ITT’s credits would not transfer to most schools.
The default rate on the PEAKS loans is projected to exceed 80%, due to both the high cost of the loans as well as the lack of success ITT graduates had getting jobs that earned enough to make repayment feasible. The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.
“This settlement ensures that former ITT Technical Institute students are no longer subjected to the abusive lending practices of PEAKS Trust,” Attorney General Hill said. “This program, like ITT before it, is now defunct. We hope this result eases the financial stress that so many former students have undoubtedly endured.”
Under the settlement, PEAKS has agreed that it will forgo collection of the outstanding loans and cease doing business. PEAKS will send notices to borrowers about the canceled debt and ensure that automatic payments are cancelled. The settlement also requires the PEAKS to supply credit-reporting agencies with information to update credit information for affected borrowers.
Nationally, the settlement will result in debt relief of about $330 million for 35,000 borrowers who have outstanding principal balances.
Students do not need to take any action to receive the debt relief. The notices will explain their rights under the settlement. Students may direct questions to PEAKS at email@example.com or 866-747-0273, or the Consumer Financial Protection Bureau at 855-411-2372.