Did you know that some schools use predatory tactics to pressure their students into taking out way too many student loans?
It’s unbelievable, but true. I’ve written about this before here in my blog, and ITT just got into big trouble for allegedly doing just this.
I’ve included a portion of the press release about it below. Make sure you read it through to the end, to learn about the CFPB’s (Consumer Financial Protection Bureau) claims about ITT’s deceptive practices, and what you can do to steer clear of scams like these.
Yesterday (February 26, 2014), the Consumer Financial Protection Bureau (a government agency devoted to helping and protecting consumers in various financial matters) sued ITT Tech for using, “high-pressure tactics to push many consumers into expensive loans destined to default.”
In the CFPB’s words:
“Most of ITT’s students borrow large sums to pay the high tuition costs […] private student loans also provide critical revenue for ITT. Because most ITT students’ federal aid does not cover the full cost of an ITT program, most students face a ‘tuition gap’ requiring them to find other sources of funding.
The CFPB’s lawsuit alleges that ITT encouraged new students to enroll at ITT by providing them funding for this tuition gap with a zero-interest loan called “Temporary Credit.” This loan typically had to be paid in full at the end of the student’s first academic year. But ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund their next year’s tuition gap.
The CFPB lawsuit alleges that ITT pushed its students into repaying their Temporary Credit and funding their second-year tuition gaps through high-cost private student loan programs. Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies. ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s ‘plan all along.’
…In today’s lawsuit, the Bureau alleges the following conduct by ITT:
- Pressured into predatory loans: ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls. The loans were high-cost. For borrowers with credit scores under 600, for example, the costs of the private student loans included 10 percent origination fees and interest rates as high as 16.25 percent.
- Credits not transferable: ITT was accredited by a national organization that accredits many for-profit schools, but the credits that students earned typically did not transfer to local community colleges or other nonprofit schools such as public or private colleges. ITT used the prospect of expulsion and the loss of the money already spent during the student’s first year to coerce students into taking out the private loans.
- Misleading future job prospects: The Bureau believes that ITT’s representations led students to think that when they graduated they were likely to land good jobs and enough salary to repay their private student loans. In this way, ITT exploited student expectations while it knew that a majority of students would default.
- Loans likely to fail: ITT knew that most of its students would ultimately default on their private student loans; it projected a default rate for its students of 64 percent. Defaulting on private student loans can have grave consequences for consumers. It can make it difficult to get any kind of loan for years and even affect a borrower’s job prospects. And, because private student loans are difficult to discharge in bankruptcy, the debt can be very difficult to recover from.
To read the entire press release on ITT and the CFPB, click the link below.
Ay yai yai. Even though this news story is highlighting an ugly situation, it also has a silver lining.
It shows that the Consumer Financial Protection Bureau is actively working to protect students against predatory lending tactics.
Do you have a student loan experience similar to the one described above? If you do, I hope you’ll take a moment to make some noise about it by taking one or all of the steps below.
- Go online at consumerfinance.gov/complaint
- Call the toll-free phone number at 1-855-411-2372
- Fax the CFPB at 1-855-237-2392
- Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
For every problem (even student loan debt ones), there is a solution.
And when it comes to managing your student loan debt, your best bet is to face it head on, and get some help with it as soon as possible.
For expert guidance with your student debt, click here to schedule a free call with me. Although I call this a consultation, it’s really more of a help assessment.
Regardless of whether you are the right fit for my services, we’ll take a few minutes to discuss your best and healthiest possible repayment trajectory.
Let’s make sure you get in control of your loans, learn your repayment options and head in the right direction!