AG Rutledge settles with group over student debt defaults

Arkansas Attorney General Leslie Rutledge reached a settlement with Student CU Connect LLC (CUSO) for former ITT Tech students resolving a multi-state investigation which alleged that ITT and CUSO used high pressure tactics to accept CUSO loans. These student loans carried higher interest rates than federal loans, ultimately resulting in a high number of loan defaults.

The settlement includes $1,073,688.40 in debt relief for 128 Arkansans.

“ITT and CUSO deceived Arkansans by using illegal and high pressure tactics and they must be held responsible for their actions,” Rutledge said. “This settlement provides relief to Arkansans who attended ITT Tech and incurred debts for a questionable education that they could neither repay nor discharge.”

Rutledge and other states’ 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 the education. The temporary credit was due to be repaid before the student’s next academic year, although ITT and CUSO knew or should have known that most students would not be able to repay the temporary credit when it became due. 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 it became due, however, ITT pressured and coerced students into accepting loans from CUSO, which for many students carried high interest rates, far above rates for federal loans, according to Rutledge.

Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the loan terms. Because students were left with the choice of dropping out and losing any benefit of the credits they had earned – ITT’s credits would not transfer to most other schools – most students enrolled in the CUSO loans. Neither ITT nor CUSO made students aware of the true cost of repayment for the temporary credit until after the credit was converted to a loan.

Not surprisingly, the default rate on the CUSO loans was extremely high – projected to exceed 90% – due to both the high cost of the loans as well as the lack of success ITT graduates had getting jobs that paid enough to make repayment feasible. The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.

Under the settlement, the CUSO, under threat of litigation, has agreed that it will forego collection of the outstanding loans. The CUSO, which was organized for the sole purpose of providing the ITT loans, will also cease doing business.

Under the Redress Plan, CUSO’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. The settlement also requires the CUSO to supply Credit Reporting Agencies with information to update credit information for affected borrowers.

ITT filed 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 CUSO Loan program originated approximately $189 million in student loans to ITT students between 2009 and 2011.