Why the lawsuit against ITT Education is significant
When the Consumer Financial Protection Bureau sued ITT Education Thursday, there was one comment, in particular, that should send shivers through the for-profit education industry.
In a prepared statement CFPB director Richard Cordray said, "We are taking our first public enforcement action against a for-profit college."
Did he say, first public enforcement?
Indeed, he did, suggesting there will be more in an industry already reeling from investigations by various federal regulators and state attorneys general.
The intriguing part of this story is that the the only reason the CFPB is there is because of the lending aspect of the story. In a nutshell, it alleges that ITT induced students with a temporary zero-interest credit to cover costs not covered by federal loans. When they couldn't pay back those loans, according to the suit, ITT shifted them to the company's own high interest private loans.
ITT, in a statement today, rejected the lawsuit saying that "it never should have been filed. The complaint overwhelmingly focuses on issues that are unrelated to consumer finance, and attempts to cast a negative light on aspects of ITT Tech's activities that are extensively regulated by other government agencies."
And that's the point, according to Brad Safalow of PAA Research, a longtime ITT observer and critic: "They're giving a script to state attorneys general, the SEC, the Department of Education and class action attorneys," notably on allegations that ITT exaggerated job-placement rates and post-graduate salaries. So far, ITT has disclosed it is being investigated by the SEC and the Massachusetts attorney general; at least one class action lawsuit also has been filed.
In addition, a task force of attorneys general from 13 states is investigating four of the larger for-profit colleges, including ITT, after receiving numerous complaints from students and former students.
Meanwhile, ITT also said in response to the CFPB's suit that it "did not 'coerce' its students into unfair loans or 'rush' them through the financial aid process."
ITT has been in the crosshairs of various allegations for years. As far back as 2004 it was raided by the FBI amid allegations that it had shredded documents.
Nothing ever happened, and it's unclear what will happen this time. The difference between then and now, says critic Safalow: "Now we have transparency about what actual outcomes of student loans are."
For those who need a refresher course, based on Department of Education findings, loan defaults for the industry as a whole get failing grades. Numbers from the National Center for Education Statistics reveal that for students starting a four-year bachelor's degree program in 2004, just 28 percent of those attending for-profit schools graduated within six years.