A coalition of 48 state Attorneys General has secured an agreement to obtain debt relief for former ITT Tech students in Missouri. A press release from State Attorney General Eric Schmitt’s Office says the court settlement will result in more than $9.1 million in relief by cancelling loan principal interest, fees and charges for over 1,300 Missouri borrowers. Nationally, the settlement will result in relief of about $330 million for 35,000 borrowers.
The settlement is with PEAKS Trust, a private loan program run by the for-profit college. ITT, which filed for bankruptcy in 2016, had operated campuses in Arnold, Earth City, Kansas City, and Springfield.
“This settlement will bring millions in debt relief for former ITT students in Missouri and across the country who were pressured and coerced to take high interest loans,” says Schmitt.
PEAKS emerged after the 2008 financial crisis when private lending sources available to for-profit colleges disappeared. ITT designed 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.
Schmitt says ITT and PEAKS knew or should have known that the students would not be able to repay the temporary credit when it became due nine months later. He says many students complained that they thought the temporary credit was like a federal loan and would not be due until six months after they graduated.
When the temporary credit became due, Schmitt says ITT pressured and coerced students into accepting loans from PEAKS, which for many students carried high interest rates, far above federal loan rates. ITT used “pressure tactics” like pulling students out of class and threatening to expel them if they did not accept the loan terms. Many of the ITT students were from low-income backgrounds and were left with the choice of 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.
Schmitt says the default rate on the PEAKS loans is projected to exceed 80%, due to both the high cost of the loans and 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.
Under the settlement, PEAKS has agreed to stop trying to collect the outstanding loans and cease doing business. PEAKS is responsible for sending notices to borrowers about the cancelled debt and ensuring that automatic payments are cancelled. The settlement also requires PEAKS to give credit reporting agencies information to update credit information for affected borrowers.
Schmitt says students will not have to do anything to receive the debt relief. The notices will explain their rights under the settlement. For questions, ftudents can call PEAKS at [email protected] or 866-747-0273, or the Consumer Financial Protection Bureau at (855) 411-2372.
In June 2019, Attorney General Schmitt was part of a $168 million settlement that resulted in relief for 18,664 former ITT students, including $4.7 million for roughly 600 Missourians. That agreement was with Student CU Connect CUSO, LLC, which also offered loans to finance students’ tuition at ITT Tech.
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