09/15/2020 | Press release | Distributed by Public on 09/15/2020 10:56
Commonwealth of Virginia
Office of the Attorney General
202 North Ninth Street
For media inquiries only, contact:
Charlotte Gomer, Press Secretary
Mobile: (804) 512-2552
~ Herring joins CFPB, 47 other state attorneys general in securing $330 million agreement over PEAKS loans at defunct for-profit school ~
RICHMOND (September 15, 2020) - Attorney General Mark R. Herring has secured an agreement to obtain approximately $15.3 million in debt relief for at least 1,840 former ITT Tech students in Virginia as part of a settlement with 48 attorneys general and the federal Consumer Financial Protection Bureau. Nationally, the settlement will result in debt relief of about $330 million for 35,000 borrowers who have outstanding principal balances.
The settlement is with PEAKS Trust, a private loan program run by the for-profit college and affiliated with Deutsche Bank entities. 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.
'Student loan debt continues to be a significant burden to Virginians and their families across the Commonwealth,' said Attorney General Herring. 'As Attorney General, I am committed to protecting Virginians from unscrupulous for-profit schools and shady lenders who try to pressure, abuse, and exploit student loan borrowers. I am glad we were able to reach this agreement that I hope will alleviate some of the financial pressure on Virginians who were taken advantage of by this scheme.'
PEAKS was formed after the 2008 financial crisis when private sources of lending available to for-profit colleges dried up. ITT developed a plan with PEAKS to offer students temporary credit to cover the gap in tuition between federal student aid and the full cost of the education.
According to the settlement agreement, 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.
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.
The default rate on the PEAKS loans is projected to exceed 80%, 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 PEAKS to supply credit reporting agencies with information to update credit information for affected borrowers.
In June 2019, Attorney General Herring announced that he had secured $9.29 million in debt relief for nearly 1,000 former ITT Tech students in Virginia as part of a $186 million settlement that resulted in debt relief for 18,664 former ITT students nationally. That agreement was with Student CU Connect CUSO, LLC, which also offered loans to finance students' tuition at ITT Tech.
Additionally last year, Attorney General Herring and 48 other attorneys general reached a settlement with for-profit education company Career Education Corporation (CEC). The terms of the settlement required CEC to reform its recruiting and enrollment practices and forgo collecting about $493.7 million in debts owed by 179,529 students nationally. In Virginia, 3,094 students will receive relief totaling $8,022,178.
In December 2016, the Attorney General announced that more than 5,000 Virginia students formerly enrolled in schools operated by Corinthian Colleges, Inc. may be eligible for loan forgiveness. This came after the U.S Department of Education found that Corinthian College and its subsidiaries published misleading job placement rates for many programs between 2010 and 2014. Following this announcement, Attorney General Herring urged Secretary DeVos and the Department of Education to follow through on their commitment to cancel student debt for students in Virginia and around the country who were victimized by Corinthian Colleges' practices.
Attorney General Herring has stood up against the Trump Administration's numerous attempts to rollback student borrower protections. In January, he urged Congress to reject the U.S. Department of Education's 2019 Borrower Defense Rule that fails to protect students and taxpayers from the misconduct of unscrupulous schools. Previously, Attorney General Herring won a victory in federal court when a judge rejected the Trump Administration's challenge to the Obama-era Borrower Defense Rule, ordering its immediate implementation for students nationwide. This ruling followed a victory Attorney General Herring won in federal court after he and a coalition of state attorneys general challenged the U.S. Department of Education's plan to abruptly rescind its Borrower Defense Rule which was designed to hold abusive higher education institutions accountable for cheating students and taxpayers out of billions of dollars in federal loans. The immediate implementation of the 2016 Borrower Defense rule meant that the U.S. Department of Education had to automatically discharge $381 million in loans for students whose schools closed.
Students with questions about their rights under the settlement will receive information in the Notices that are sent. Students may also contact Attorney General Herring's Consumer Protection Section:
Overall, Attorney General Herring's Consumer Protection Section has recovered more than $334 million in relief for consumers and payments from violators. The Section has transferred more than $61 million to the Commonwealth's General Fund, and following a major reorganization and enhancement in 2016 the Section has been even more effective in fighting for Virginia consumers.
Joining Attorney General Herring in announcing today's settlement are the attorneys general of Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, 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, Vermont, Utah, Washington, West Virginia, Wisconsin, and Wyoming.
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