$5.3 million in Pennsylvania student debt to be canceled as part of national lawsuit settlement

Hundreds of Pennsylvania students of the now-bankrupt ITT Technical Institute will see $5.3 million in debt relief as part of a national settlement, the state Attorney General’s Office said this week.

Attorney General Josh Shapiro said 570 Pennsylvania students stand to benefit when $5.3 million in their private loans is canceled as part of the multistate settlement.

The settlement provides $168 million for more than 18,000 students nationwide harmed by “abusive lending practices.”

A coalition of 44 states reached a settlement with Student CU Connect CUSO LLC, which was managing loans for ITT, which filed for bankruptcy in 2016.

“With the private student loan program that ITT and CUSO established, ITT Tech was able to take advantage of thousands of hardworking students who were simply trying to complete their education,” Shapiro said in a statement.

Pennsylvania has the second-highest student debt load in the United States — averaging $36,854 in debt per graduate.

“Students do not need to do anything to receive the debt relief," said Joseph Grace, spokesperson for the state’s attorney general. “The students will get a notice, but the debts will be automatically zeroed out” by lender CUSO, which is required to notify credit reporting agencies.

“All of that happens within 30 days,” Grace said. "There is no window by which students must act. Also, this resolution only applies to certain private loans, not to federal student loans.”

The attorneys general alleged that ITT, with CUSO’s knowledge, offered students Temporary Credit (TC) to cover the gap between student aid and the full cost of the education. Those temporary credits were due before the next academic year; but many students thought it was similar to a federal loan and would not be due until six months after graduation.

When the temporary credits became due, attorneys general allege that ITT pressured and coerced students into accepting loans from CUSO, which often came with interest rates far above the rates for federal loans.

“ITT resorted to pressure tactics, such as pulling students out of class and threatening to expel them if they did not accept the loan terms,” Shapiro’s office said in a statement. “Since ITT’s credits would not transfer to most other schools, most students enrolled in the CUSO loans.”

The default rate on the CUSO loans is projected to exceed 90 percent due to both the high cost of the loans as well as the lack of success ITT graduates had in getting jobs that earned enough to make repayment feasible, the statement added.

The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.

Under the terms of the settlement, CUSO will forgo collection of the outstanding loans. CUSO’s loan servicer will send notices to borrowers about the canceled debt and cancel automatic payments.

Students with questions about their rights under this settlement can contact the Attorney General’s Bureau of Consumer Protection at 1-800-441-2555 or at scams@attorneygeneral.gov.