WASHINGTON, D.C. – Attorney General Karl A. Racine announced today that PEAKS Trust, a private loan program run by the defunct for-profit school ITT, will provide more than $580,000 in debt relief for former students in the District as part of a settlement with 48 attorneys general and the federal Consumer Financial Protection Bureau. Nationally, the settlement will result in approximately $330 million in debt relief for 35,000 borrowers who have outstanding principal balances. The Attorneys General allege that ITT and PEAKS targeted low-income consumers with temporary zero-interest loans that they would be unable to pay, coerced them into accepting riskier loans from PEAKS to pay the temporary-credit off, and then harassed them with expulsion if they did not accept the loan terms.
ITT was a publicly traded, for-profit corporation that, until September 2016, enrolled consumers in classes at 149 locations throughout the country. ITT and Deutsche Bank formed PEAKS Trust, a private loan program, after the 2008 financial crisis when private sources of lending available to for-profit colleges dried up. Together, ITT and PEAKS developed a scheme to target low-income consumers with temporary zero-interest loans to cover the gap in tuition between federal student aid and the full cost of the education. When students failed to pay on time, ITT coerced them into accepting PEAKS loans to pay off their temporary loans, making the temporary loans merely an entry point to riskier credit lines that posed an unsurmountable financial burden to many of its students.
The settlement is with PEAKS Trust. 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.
According to the settlement filed Tuesday, ITT and PEAKS:
- Knew students would have trouble repaying the loans: ITT 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 complained that they thought the temporary credit was like a federal loan and would not be due until six months after they graduated.
- Harassed students: When the temporary credit became due, ITT pressured and coerced students into accepting loans from PEAKS, which for many students carried high interest rates, far above rates for federal loans. Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the 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.
- Issued risky loans that trapped students with bad credit: 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 the settlement, PEAKS has agreed that it will forgo collection of the outstanding loans and cease doing business. PEAKS will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. The settlement also requires the PEAKS to supply credit reporting agencies with information to update credit information for affected borrowers.
A copy of the settlement is available at: https://oag.dc.gov/sites/default/files/2020-09/ITT-PEAKS-AVC.pdf
Students do not need to take any action to receive the debt relief. The notices will explain their rights under the settlement. Students may direct questions to PEAKS at firstname.lastname@example.org or 866-747-0273, or the Consumer Financial Protection Bureau at (855) 411-2372.
In June 2019, AG Racine was part of a $168 million settlement that resulted in debt relief for 18,664 former ITT students. That agreement was with Student CU Connect CUSO, LLC, which also offered loans to finance students’ tuition at ITT Tech.
In addition to the District of Columbia, the settlement was signed by the Attorneys General of Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.