AG Schmitt Announces Multistate Settlement with Private Lender that Will Deliver over $4.7 Million in Debt Relief to Former Missouri ITT Tech Students
Jefferson City, MO (STL.News) – Missouri Attorney General Eric Schmitt announced yesterday that the Missouri Attorney General’s Office has secured an agreement to obtain over $4.7 million in debt relief for approximately 600 former ITT Tech students in Missouri as part of a multi-state settlement. Nationally, the settlement will result in debt relief of more than $168 million for more than 18,000 former students at ITT Tech, the failed for-profit college. The settlement is with Student CU Connect CUSO, LLC (“CUSO”), which offered loans to finance students’ tuition at ITT Tech. ITT filed for bankruptcy in 2016 amid investigations by the states and following action by the U.S. Department of Education to restrict ITT’s access to federal student aid. The CUSO Loan program originated approximately $189 million in student loans to ITT students between 2009 and 2011.
A related settlement between the CUSO and the U.S. Bankruptcy Trustee was approved on June 12th. The states’ settlement is also contingent on federal court approval of a related settlement between the CUSO and the federal Consumer Financial Protection Bureau.
“As Attorney General, rooting out fraud and bringing people to justice for scamming Missourians are important duties of mine. Since I took office, we have worked tirelessly to protect Missouri citizens and ensure that money is put back in their pockets when it is unjustly stolen,” said Attorney General Schmitt. “That’s why I’m pleased to announce today that hundreds of former ITT Tech students will receive $4.7 million in debt relief.”
The state attorneys general alleged that ITT, with CUSO’s knowledge, offered students “temporary credit” upon enrollment to cover the gap in tuition between federal student aid and the full cost of the education. ITT required students to repay the temporary credit before their next academic year, however, many students complained that they were led to believe the temporary credit was like a federal loan and would not be due until six (6) months after they graduated. ITT and CUSO knew or should have known that most students would not be able to repay the temporary credit when it became due. When the temporary credit became due, ITT pressured and coerced students into accepting loans from CUSO, 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. Because the students’ alternative was to drop out and lose any benefit of the academic credits they had already earned—since ITT’s credits would not transfer to most other schools—most students enrolled in the CUSO loans. Neither ITT nor CUSO made students aware of what the true cost of repayment for the temporary credit would be until after the credit was converted to a loan. Not surprisingly, the default rate on the CUSO loans was extremely high (projected to exceed 90%) 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.
The settlement requires CUSO to forego collection of the outstanding ITT student loans. The settlement also requires CUSO to supply credit reporting agencies with information to update credit information for affected borrowers. CUSO, which was organized for the sole purpose of providing the ITT loans, will then cease doing business. Under the settlement’s redress plan, CUSO’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. Students with questions about their rights under the settlement will receive further information in the notices that are sent.