HARRISBURG, Pa. (WTAJ) — Attorney General Josh Shapiro has secured an agreement to obtain $11.9 million dollars in debt relief for former ITT Tech students in Pennsylvania as part of a settlement with 48 attorneys general and the federal Consumer Financial Protection Bureau.
This agreement is in the form of an Assurance of Voluntary Compliance.
Nationally, the settlement will result in debt relief of about $330 million dollars 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.
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.
ITT–which operated seven campuses in Pennsylvania–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.
The investigation concluded that ITT and PEAKS knew or should have known that students would not be able to repay the temporary credit by the due date, which they thought was after they had graduated.
The investigation also found that ITT pressured students to accept loans from PEAKS, which carried high interest rates far above federal loans.
The loans, which has a default rate projected to exceed 80 percent, continue to affect students’ credit ratings and are not usually dischargable 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.
“This settlement will provide debt relief for more than 1,400 hardworking students in Pennsylvania who were pressured and coerced into accepting loans from PEAKS for fear of losing the credits they had earned,” said Attorney General Shapiro.
Students will need to do nothing to receive the debt relief. The notices will explain their rights under the settlement.