PROVIDENCE – Rhode Island has finalized a multistate settlement with a private student loan provider associated with the now-defunct ITT Tech, securing over $150,000 in combined debt relief for 19 Rhode Islanders, Attorney General Peter F. Neronha announced on Tuesday.
The settlement is with PEAKS Trust, a private loan program run by ITT Tech and affiliated with Deutsche Bank entities. Neronha said that PEAKS was formed after the 2008 financial crisis, when sources of lending for for-profit colleges dried up. The program offered students temporary credit to cover the gap in tuition between federal student aid and the full cost of the education.
The settlement, signed by 49 states and the Consumer Financial Protection Bureau, totals $330 million and benefits roughly 35,000 borrowers.
According to court documents, ITT and PEAKS knew or should have known that students would not be able to repay the temporary credit when it became due nine months later. Many students complained that they thought the credit would not be due until six months after they graduated, like a federal loan would.
Court documents also said that when the credit became due, ITT and PEAKs pressured and coerced students into accepting loans from PEAKS, which carried high interest rates for some students, far above rates of federal loans. Tactics included pulling students out of class and threatening to expel them if they did not accept the terms of the loans.
The default rate on the PEAKS loans is projected to exceed 80%, due to the high cost of the loans and the lack of success ITT graduates had at getting jobs that paid enough to make repayment feasible. The loans are usually not dischargeable in bankruptcy, according to the court.
Under the settlement, PEAKS has agreed to forgo collection of the outstanding loans and cease doing business. Notices will be sent to the identified borrowers about the canceled debt and ensure that automatic payments are canceled. PEAKS will also inform credit-reporting agencies to update credit information for the affected borrowers.
ITT Tech declared 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 R.I. Office of the Attorney General.
