published Wednesday, February 26th, 2014

Feds sue ITT school system for predatory lending; high-pressure tactics

  • photo
    The Indiana-based ITT Educational Services maintains a campus in Chattanooga at Eastgate Town Center.
    Photo by John Rawlston /Chattanooga Times Free Press.

The Consumer Financial Protection Bureau has sued nationwide for-profit college chain ITT Educational Services for predatory lending, according to a news release.

Federal investigators allege that the school’s financial aid staff pressured students to rush through an automated application process. Only later did students discover that they were on the hook for loans with interest rates as high as 16.25 percent, which provided a significant source of income for the school system.

Nicole Elam, vice president of government relations and external affairs, wouldn’t comment on specific allegations in the complaint, but said the school would fight the lawsuit.

“We don’t comment on pending litigation, other than to say that we believe the bureau’s claims are without merit and we intend to vigorously defend ourselves against the charges,” Elam said.

The crux of the bureau’s complaint is that ITT officials “knew that most of its students would ultimately default on their private student loans,” with internal projections for a default rate hovering at 64 percent.

“ITT marketed itself as improving consumers’ lives, but it was really just improving its bottom line,” said Richard Corday, director of the CFPB. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default. Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”

Since many credits earned at ITT don’t transfer to other schools, the school system allegedly used the prospect of expulsion to coerce students into taking out the loans, the CFPB said.

The Indiana-based school system maintains a campus in Chattanooga at Eastgate Town Center. Chattanooga’s campus is one of 150 locations in nearly 40 states.

Tuition for an associate’s degree at ITT can cost more than $44,000, according to a news release. ITT’s bachelor’s degree programs can cost $88,000. Those costs are “significantly higher” than the cost of a corresponding degree at a community college or four-year university, according to investigators.

Contact staff writer Ellis Smith at or 423-757-6315.

about Ellis Smith...

Ellis Smith joined the Chattanooga Times Free Press in January 2010 as a business reporter. His beat includes the flooring industry, Chattem, Unum, Krystal, the automobile market, real estate and technology. Ellis is from Marietta, Ga., and has a bachelor’s degree in mass communication at the University of West Georgia. He previously worked at UTV-13 News, Carrollton, Ga., as a producer; at the The West Georgian, Carrollton, Ga., as editor; and at the Times-Georgian, Carrollton, ...

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