Tens of thousands of former students at ITT Technical Institute, a for-profit chain that collapsed four years ago, will not have to repay $330 million in private student loans that prosecutors called “reckless” and deceptive, under a settlement deal announced on Tuesday.
The agreement, involving a federal regulator and attorneys general from 47 states, covers debts incurred through ITT’s Peaks loan program, which was often used by students who had maxed out their federal student loans.
The program’s loans carried high interest rates and trapped borrowers in debts that ITT knew they would be unable to repay, according to a complaint filed by the Consumer Financial Protection Bureau. In some cases, financial aid officers sometimes signed loan documents without the borrower’s knowledge or permission.
“Many students were pushed into Peaks Loans, did not understand the terms of their Peaks Loans, or did not realize they had taken out loans at all,” the bureau wrote in its filing in the U.S. District Court for the Southern District of Indiana.
The settlement agreement, which requires a federal judge’s approval to be enacted, covers about 35,000 borrowers, many of whom have been left with high debts and ruined credit. The deal requires the loans’ owners to cancel all outstanding loan balances and cease collection efforts.
Trusts set up by Deutsche Bank made the loans, but ITT effectively controlled them. The loans were sold off to investors, but the high default rate — about 80 percent — and ITT’s bankruptcy mean those investments haven’t been performing.
A spokesman for Deutsche Bank declined to comment on the settlement.