SACRAMENTO – California Attorney General Xavier Becerra announced a settlement with Student CU Connect CUSO LLC, or CUSO, resolving allegations related to its involvement in an illegal private loan scheme to benefit itself at the expense of its students.

CUSO provided private loans for students to attend the now-defunct, predatory ITT Technical Institute, or ITT Tech.

With substantial assistance from CUSO, ITT Tech conducted a coordinated scheme to misdirect student borrowers towards expensive student loans that borrowers struggled to repay.

The settlement will provide $168 million in relief to 22,000 borrowers – 4,000 of whom are in California. Many of these students were low-income and the targets of aggressive and misleading sales tactics by the school.

“ITT Tech, aided by CUSO, ripped off thousands of students in this illegal and coordinated scam,” said Attorney General Becerra. “In addition to grossly overcharging vulnerable students for a sham education, the companies guided students toward expensive and unwieldy loans that were nearly impossible to pay back. Students should by worrying about homework, not predators looking to exploit them for a quick buck.”

ITT Tech – one of the most expensive for-profit post-secondary institutions – received revenues from student tuition and fees.

As required by federal law known as the 90/10 Rule, private for-profit schools may receive no more than 90 percent of their revenue from federal public loans, with the remainder originating from other sources.

ITT Tech enlisted CUSO to provide ITT Tech students with private loans for this purpose. It then steered borrowers toward the lender. This scheme was designed for ITT Tech to enhance its financial statements, its appearance with investors, and to facilitate compliance with the 90/10 Rule.

The loan program issued $189 million in loans to ITT Tech students between 2009 and 2011. ITT Tech staff targeted students through aggressive tactics, including pulling students from class, withholding course material or transcripts, and rushing students through financial aid appointments.

The company projected that more than 60 percent of students would default on the loans, which carried interest rates as high as 16.25 percent.

These loans covered tuition gaps for which ITT Tech had previously offered short-term loans called “temporary credits.” Temporary credits were zero-interest loans payable in nine months, but were presented to students as loans payable upon graduation.

The credits had a high default rate, as students were unable to repay the full amount in such a short time. By extending loans through CUSO, ITT Tech could remove these unpaid credit balances from its financial reports.

Besides requirements that CUSO provide $168 million to student borrowers, the settlement includes restitution and borrower relief. CUSO will cease conducting business, including acquiring or issuing student loans, and cease all collection activities.

CUSO will also cancel all outstanding balances of consumer loan accounts and will direct credit reporting agencies to delete these balances from consumers’ credit reports. CUSO will implement a consumer redress plan to notify consumers of the settlement.

A copy of the final judgment can be found here.