The settlement is with Student CU Connect CUSO, LLC (CUSO), which offered loans to finance student tuition at ITT Tech, a failed for-profit college. ITT filed for bankruptcy in 2016 amid investigations by state attorneys general and following action by the U.S. Department of Education to restrict ITT’s access to federal student aid. CUSO’s loan program originated about $189 million in student loans to ITT students between 2009 and 2011.
“These students were misled, pressured and sometimes threatened into borrowing from this lender,” Yost said. “They’ve had to carry the heavy weight of these unreasonable loans for far too long, but today they can finally breathe a sigh of relief.”
A related settlement between CUSO and the U.S. Bankruptcy Trustee was approved on June 14. The settlement with the attorneys general is also contingent on federal court approval of another related settlement between CUSO and the federal Consumer Financial Protection Bureau, which is also being announced today.
The 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 education. Repayment of the credit was due before a student’s next academic year, although ITT and CUSO knew or should have known that most students would be unable to repay it by that time.
Many students thought the temporary credit was like a federal loan and would not be due until six months after they graduated. When the credit was due, however, ITT pressured students into accepting loans from CUSO, which for many students carried high interest rates, far above rates for federal loans. ITT’s pressure tactics included pulling students out of classes and threatening to expel them if they did not accept the loan terms. Because students were left with the choice of accepting a loan from CUSO or dropping out and losing any credits they had earned – ITT’s credits would not transfer to most other schools – most students enrolled in CUSO loans.
Neither ITT nor CUSO told students the true repayment cost of the temporary credit until after the credit was converted to a loan. The default rate on CUSO loans was extremely high (projected to exceed 90%) due to the high cost of the loans and difficulties ITT graduates had finding jobs that earned enough to make repayment feasible. The defaulted loans continue to affect the credit ratings of former students and are usually not dischargeable in bankruptcy.
According to the settlement, CUSO, under threat of litigation, has agreed to forego collection of the outstanding loans. CUSO, which was organized for the sole purpose of providing the ITT loans, will also cease doing business. CUSO’s loan servicer will notify borrowers of the cancelled debt and ensure that automatic payments are cancelled. The settlement also requires CUSO to supply credit reporting agencies with information to update credit information for affected borrowers.
Former students impacted by the settlement will receive notices with more information about their rights. Those with questions can contact Attorney General Yost’s office by calling 800-282-0515.