(Adds details on crackdown on private student loan lenders)
By Elvina Nawaguna
WASHINGTON Feb 26 The U.S. consumer watchdog
said on Wednesday it has sued ITT Educational Services Inc
for what the agency says are predatory student lending
practices that could lead borrowers to default on their loans.
The U.S. Consumer Financial Protection Bureau said the
Indiana-based for-profit college chain exploited students and
pushed them into "high-cost private loans" that leave them
strapped with debt.
The agency, in a complaint filed in U.S. District Court in
Indianapolis, Indiana, said it is seeking restitution for
victims, a civil fine, and an injunction against the company.
"Today's action should serve as a warning to the for-profit
college industry that we will be vigilant about protecting
students against predatory lending tactics," CFPB Director
Richard Corday said.
The company is also facing legal action from different
states, including New Mexico which is suing over the ITT's
nursing program, saying that many students were unable to
complete the program or transfer their credit to other
Shares of ITT slumped 8.6 percent on Wednesday to $32.56.
ITT has more than 140 institutions in nearly 40 states, and
also operates as ITT Tech and Daniel Webster College.
"We believe that the bureau's claims are without merit and
we intend to vigorously defend ourselves against those charges,"
Nicole Elam, a spokeswoman for ITT, told Reuters.
The CFPB said that ITT used high-pressure tactics to push
students into taking out loans without enough time to understand
the details, misled students about future job prospects, and
coaxed students into taking out more loans, while knowing they
would not be able to pay them back.
While most students in for-profit colleges take out federal
student loans, the consumer watchdog said that many for-profit
colleges pressure the students to take out additional private
loans, which tend to have higher interest rates and tighter
Citing data from the National Center for Education
Statistics, Cordray said that only 28 percent of bachelor's
degree students starting a four-year program at for-profit
colleges in 2004 graduated within six years, half the rate for
students at four-year public institutions.
The CFPB has taken a wide interest in the private student
loan industry and has sought to exercise more oversight over
private lenders and for-profit institutions.
The agency has taken aim at private lenders such as Sallie
Mae and Discover Financial Services for their
student loan lending practices.
CFPB has oversight over the student loan servicing
activities of large banks with more than $10 billion in assets.
Under a new rule set to take effect on March 1, it expects to
expand its supervision to non-bank student loan servicers that
handle more than 1 million accounts, regardless of whether they
include federal or private loans.
The lawsuit against ITT is the agency's first enforcement
action against a for-profit college.
(Additional reporting by Aruna Viswanatha; Editing by Franklin
Paul, Leslie Adler and Bernard Orr)