WASHINGTON — The Consumer Financial Protection Bureau filed suit Wednesday against a large, for-profit college chain, alleging that it pushed students into high-cost private student loans knowing they would be likely to end in default.
ITT Educational Services Inc. projected a default rate of 64 percent on the loans it provided, some of which had interest rates as high as 16 percent, the bureau said. The Carmel, Ind., company has about 150 institutions in nearly 40 states, operating as ITT Tech, Daniel Webster College, and other entities.
Tuition at the chain’s colleges can go as high as $88,000 for a bachelor’s degree and $44,000 for an associate’s degree, according to the bureau.
The lawsuit, filed in federal court in Indiana, is the bureau’s first action against a for-profit college. It seeks restitution for victims, an injunction against the company and a civil fine.
Nicole Elam, a vice president with ITT, said in an e-mail that the bureau’s claims are without merit, but she wouldn’t comment further on pending litigation.
The bureau said that because federal student loans don’t cover all tuition costs for most ITT students, most of the students attending the chain’s institutions face a ‘‘tuition gap.’’ ITT provided a temporary, zero-interest loan to these students that typically had to be paid back during the first year — even though the company knew it was unlikely many students would be able to do so, according to the lawsuit.
The lawsuit is the latest in a string of actions targeting the for-profit college industry, which has among the highest student loan default rates and lowest graduation rates in higher education and has faced criticism for its recruitment tactics.
Attorneys general in California, Massachusetts, Colorado, New York, and Illinois also are pursuing action against various for-profit institutions.