Attorney General Ellison’s office wins more than $1 million in debt relief for former ITT Tech students
CUSO agrees to forego collection of outstanding loans and cease doing business
June 19, 2019 (SAINT PAUL) — Attorney General Ellison announced today that his office has secured more than $1 million in debt relief for former students of Minnesota ITT Tech as part of a multistate settlement with Student CU Connect CUSO, LLC (“CUSO”). Under the settlement, CUSO, which was organized for the sole purpose of providing the ITT loans, has agreed that it will forego collection of the outstanding loans and cease doing business. CUSO’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled.
“Too many Minnesotans are having trouble affording their lives because lenders rely on deceptive and abusive practices to saddle students with debt they can’t repay,” Attorney General Ellison said. “This settlement holds CUSO accountable for their role in misrepresenting loans they made to former ITT students, and gets some money back for them.”
The settlement also requires CUSO to supply Credit Reporting Agencies with information to update credit information for affected borrowers. Students with questions about their rights under the settlement will receive information in notices from the loan servicer.
Nationwide, the settlement will result in debt relief of more than $168 million for more than 22,000 former ITT students.
A related settlement between CUSO and the U.S. Bankruptcy Trustee was approved on June 14. The attorneys general settlement is also contingent on federal court approval of a related settlement between the CUSO and the federal Consumer Financial Protection Bureau, which was filed on June 15.
CUSO offered loans to finance students’ tuition at ITT, the failed for-profit college with campuses in Brooklyn Center and Eden Prairie, until ITT closed and filed bankruptcy in 2016 amid investigations by state attorneys general and after the U.S. Department of Education banned it from enrolling new students using federal student-aid funds.
The attorneys general alleged that ITT, with CUSO’s knowledge, offered students Temporary Credit (TC) upon enrollment to cover the gap in tuition between federal student aid and the full cost of the education. The TC was due to be repaid before the next academic year, although ITT and CUSO knew or should have known that most students would not be able to repay the TC when it became due. Many students complained that they thought the TC was like a federal loan and would not be due until six months after they graduated.
When the TC became due, however, ITT pressured and coerced students into accepting loans from CUSO, 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.
Because students were faced with the choice of dropping out and losing any benefit of the credits they had earned — because ITT’s credits would not transfer to most other schools — most students enrolled in the CUSO loans.
Neither ITT nor CUSO made students aware of what the true cost of repayment for the TC would be until after the credit was converted to a loan. Not surprisingly, the default rate on the CUSO loans was higher than 90%, 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.