TRENTON – Attorney General Gurbir S. Grewal announced today that New Jersey has entered into a settlement agreement that will result in approximately $1.85 million in student loan forgiveness for more than 200 New Jersey borrowers who obtained student loans from private education lender PEAKS Trust 2009-1 in order to attend the failed for-profit college ITT Tech.
PEAKS is a lending program associated with ITT Tech that was created in 2009 to purchase, own, and manage private student loans offered to ITT Tech students pursuing career education in the wake of the 2008 financial crisis.
ITT Tech declared bankruptcy in 2016 amid investigations by the states, including New Jersey, of misleading and predatory practices, and following action by the U.S. Department of Education to restrict ITT’s access to federal student aid.
Part of a nationwide settlement that will result in loan forgiveness of approximately $330 million for 35,000 borrowers with outstanding principal balances, the agreement will provide debt relief to former ITT Tech students who were pressured into taking out predatory student loans that many of them could never hope to repay.
Under the Assurance of Voluntary Compliance (AVC) announced today, PEAKS will halt all collection activities on the loans at issue, stop accepting further payments on those loans, and dissolve as a business.
“We are pleased to obtain debt relief for students who were harmed by the exploitive, predatory conduct of ITT Tech and PEAKS. When for-profit schools and their financial partners paint students into a corner with unpayable debt, we will hold them accountable,” said Attorney General Grewal.
With the filing of today’s AVC, PEAKS becomes the second private lending entity to settle multi-state allegations that it helped ITT trap many of its students in a vicious cycle of debt.
Last year, Attorney General Grewal announced a settlement with another private lender, Student CU Connect CUSO, LLC (CUSO), a consortium of credit unions created solely for the purpose of offering loans to finance the tuition of ITT Tech students.
Like CUSO, the Delaware-based PEAKS was created solely for the purpose of providing loans to ITT students and holding those loans. PEAKS’s loans were only available to ITT students, proceeds from the loans were disbursed directly to ITT, and the funds could only be used to pay ITT.
According to the states involved in the investigation, PEAKS serviced ITT’s objectives by first providing ITT students with short term Temporary Credit (TC) to cover the gap in tuition between their federal student aid and the full cost of their educations, which was more expensive than most other post-secondary institutions. (During the period when the loans were offered, ITT’s two-year associate degree programs – programs in which about 85 percent of ITT students were enrolled – cost about $44,000.)
The Temporary Credit was due to be repaid before the student’s next academic year, although both ITT and PEAKS knew, or should have known, that most students would not be able to repay the credit when it came due.
Many ITT Tech students complained that they believed the Temporary Credit extended to them was like a federal loan, and would not be due until six months after they graduated.
When affected students could not repay the Temporary Credit on time, PEAKS – with assistance from the ITT’s financial aid staff – offered loans that would ostensibly help them continue their educations. However, the loans typically carried predatory interest rates far above the rates for federal student loans.
ITT nonetheless pressured and coerced debt-ridden students to accept such loans with tactics such as cutting short financial aid meetings, pulling students out of class, and threatening to expel them if they did not accept the exploitative loan terms they were offered.
Because students were left to choose between signing up for loans at exploitatively high interest rates or dropping out and losing any benefit of the credits they had earned, many students capitulated and took on the PEAKS loans.
At no time did ITT or PEAKS make students aware of what the true cost of repayment for their Temporary Credit would be until after the credit was converted to a loan. In some cases, students were not even aware they had signed up for loans.
Not surprisingly, the default rate on the PEAKS loans was extremely high (projected to exceed 90 percent) due to both the high cost of the loans and the lack of success ITT graduates experienced in landing jobs that paid enough to make repayment feasible.
The defaulted loans continue to affect students’ credit ratings and typically are not dischargeable in bankruptcy.
Under the settlement announced today, PEAKS’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled.
The settlement also requires PEAKS to supply Credit Reporting Agencies with information to update affected borrowers’ credit profiles.
During Attorney General Grewal’s tenure, the Office of the Attorney General has secured over $20 million in student loan relief for over 6,000 New Jersey residents who attended for-profit colleges that engaged in unfair and deceptive practices.
Deputy Attorney General Cathleen O’Donnell, of the Consumer Fraud Prosecution Section within the Division of Law, handled the PEAKS matter on behalf of the State.