Defunct for-profit school pressured students into accepting terms of high-interest PEAKS loans
OLYMPIA — Attorney General Bob Ferguson today announced that 816 former ITT Tech students in Washington state will receive $5.9 million in debt relief. This amount covers all outstanding debts these borrowers owe to PEAKS Trust. The debt forgiveness resolves an investigation launched by Ferguson and a bipartisan coalition of attorneys general into unfair and deceptive lending practices by PEAKS Trust, a private loan program created to fund loans for the for-profit college ITT Tech. Today’s court filing also requires PEAKS to dissolve.
PEAKS was formed after the 2008 financial crisis. At the time, private sources of lending available to for-profit colleges were drying up. ITT Tech developed 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. ITT Tech required borrowers to repay this temporary credit in nine months, while they were still in school.
According to today’s court filing, ITT Tech 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. Many students attested that they thought the temporary credit was like a federal loan, and, consequently, would not be due until six months after they graduated. When the temporary credit became due, ITT Tech pressured and coerced students into accepting loans from PEAKS, which for many students carried high interest rates, far above rates for federal loans.
One Washington student filed a complaint with Ferguson’s office about PEAKS high-interest loans, writing: “In 2013, I was notified by PEAKS that they had ‘assumed’ my student loans from ITT Tech. They have it broken down to 4 ‘loans,’ ranging from 11.75 percent to 15.25 percent interest. The original amount of my loans were less than $20,000 and are now over $40,000. I was paying on these, religiously, until last fall when something didn’t seem right. I noticed the interest kept going up and my balances were also going up, even though I was paying $500 + per month on these loans… I am not looking to ‘get out’ of my student loans, but the interest rate is criminal and there is no hope to pay (off) these loans with these variable rates.”
Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not repay the temporary credit or accept the PEAKS 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, because ITT’s credits would not transfer to most schools.
“ITT Tech and PEAKS were only interested in increasing their bottom line at their students’ expense,” Ferguson said. “Their high-interest loans ballooned to an 80 percent default rate and left students saddled with debt. Today’s resolution will free more than 800 Washingtonians from these predatory loans.”
ITT Tech 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. The for-profit school abruptly closed all of its 149 campuses in September 2016, including campuses in Seattle, Everett and Spokane Valley.
The default rate on the PEAKS loans is projected to exceed 80 percent, 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.
Under today’s legally enforceable agreement, PEAKS has agreed that it will stop collection of 100 percent of the outstanding loans. PEAKS will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. Moreover, the settlement also requires PEAKS to supply credit reporting agencies with information to update credit information for affected borrowers, so the loans will no longer affect borrowers’ credit scores.
The relief is a result of an investigation into PEAKS loans, conducted by a bipartisan coalition of 48 attorneys general and the federal Consumer Financial Protection Bureau. Nationally, the settlement will result in debt relief of about $330 million for 35,000 borrowers who have outstanding loans with PEAKS Trust.
Borrowers will receive a notice in the mail informing them of the debt relief and detailing their rights under the settlement. The debt relief is automatic, meaning borrowers will need to do nothing to receive the debt relief. Students may direct questions about the debt relief to PEAKS at firstname.lastname@example.org or 866-747-0273, or the Consumer Financial Protection Bureau at (855) 411-2372.
Assistant Attorney General Craig Rader is handling the case for Washington.
In June 2019, Ferguson was part of a $186 million settlement that resulted in debt relief for 18,664 former ITT Tech students. Under the settlement, 538 Washingtonians received $5.1 million in debt relief. That agreement was with Student CU Connect CUSO, LLC, which also offered loans to finance students’ tuition at ITT Tech.
The Office of the Attorney General is the chief legal office for the state of Washington with attorneys and staff in 27 divisions across the state providing legal services to roughly 200 state agencies, boards and commissions. Visit www.atg.wa.gov to learn more.
Dan Jackson, Acting Communications Director, (360) 753-2716; email@example.com
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