For-Profit College Slammed with Consumer Protection Complaint

Michael Lux Blog, News, Student Loans 2 Comments

Yesterday the Consumer Financial Protection Bureau, filed a complaint against ITT, a for-profit college headquartered in Indiana.  The CFPB complaint lays out a system in which ITT mislead students about job placement numbers, gave students a false sense of achievement during recruitment, and made unreasonable suggestions about lucrative jobs.  Once ITT had convinced a student to enroll, they were allegedly coerced into signing up for federal and private loans that ITT knew most students would eventually default on.

In it’s 34 page complaint, the CFPB made the following accusations against ITT:

  • ITT specifically targets low income individuals who cannot afford the price of tuition.
  • The ITT business model relies upon students obtaining student loans to pay for their education.
  • Federal student loans are the “overwhelming majority of ITT’s revenue.”
  • Federal student loans are insufficient to cover the full cost of tuition at ITT.
  • Few ITT students can cover the gap between the ITT tuition and federal student loan limits.
  • To cover the gap, ITT issued “Temporary Credit” loans to students to cover the gap.
  • The “Temporary Credit” loans were zero interest loans, but due at the end of the academic year.
  • ITT knew that most of their students would not be able to pay off the “Temporary Credit” loans.
  • Temporary Credit operated merely as an entry point to private student loans that ITT students would be pushed into.
  • Some of the borrowers who were “pushed into” these loans were charged an interest rate of prime plus 13%, in addition to a 10% loan origination fee.
  • The ITT “Financial Aid Staff” was compensated based in part on how many students they were able to force into these private loans.
  • They used tactics such as pulling students from class or withholding course materials or transcripts, to get those students to sign up for these private loans.
  • Dating back to May of 2011, ITT projected that over 60% of the students who received these private loans would default.
  • In 2013 alone, ITT made a net profit of $59 million.

Not only does the government’s complaint lay out the student loan coercion at ITT, but it also details some misleading advertising and recruiting.

From the years of 2010 through 2012, ITT represented that it placed over 70% of its graduates into “positions that required the direct or indirect use of skills taught in their programs of study.”  What ITT allegedly failed to mention was these numbers did not include the students who did not graduate (according to the CFPB, this is the most likely outcome for a student who enrolls at ITT), but it counted graduates who were in retial positions or temporary positions.  According to the complaint, “These job placement rates were designed to mislead consumers about the value of an ITT education.”

In addition to recruiting materials that were allegedly misleading, the complaint cites mystery shoppers.  One mystery shopper stated that an ITT representative, “quoted the Department Director as saying that some of their IT Security graduates are earning six figures after one year of work.”  Another stated that, a Financial Aid Coordinator told her “about salaries at 90 thousand a year.”

During recruiting students were given admissions tests.  These tests were allegedly “virtually impossible to fail and [were] used to give prospective students the impression that ITT had admissions standards and that the students had achieved something by being admitted to the school. Despite the test, ITT would enroll virtually any student who had access to funding.”

Click here for the full text of the CFPB vs. ITT complaint.

What happens next?

At this point only a complaint has been filed.  ITT hasn’t had to pay a dime or admit fault.  The next step in the litigation process for ITT will likely be to answer the allegations in a responsive pleading.

Even though this litigation is in the very early stages, this is great news for consumers.  At the very least some insight has been shed on the internal workings at one of the nations leading for-profit schools.

Ultimately, the lasting success of this litigation will turn on one key question.  Will this change the behavior of misleading for-profit schools, or will they see this litigation as the cost of doing business and continue to deceive?