Richard Cordray, Director of the Consumer Financial Protection Bureau. Photo used under Creative Commons license. Originally posted on Flickr by the NCRC.
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With the lawsuit it filed against ITT Educational Services on Wednesday, the Consumer Financial Protection Bureau (CFPB) has put the U.S. Department of Education to shame.

It has become abundantly clear in recent years that some of the largest for-profit college companies in the country have been abusing students. Yet the Education Department has failed to take meaningful action against any of them. While the Department has written regulations aimed at reining in the for-profit higher education industry, it has not had the political will to enforce these regulations – no matter how much evidence exists about the harm these companies are doing to students.

The consumer bureau demonstrated on Wednesday that it doesn’t have any such qualms. “Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics,” Richard Cordray, the bureau’s director, said in a statement accompanying the lawsuit.

The bureau’s complaint against ITT doesn’t pull any punches. It shows in great detail how the company uses aggressive and misleading recruiting tactics to reel in low-income and working-class students, rushes them through the enrollment and financial aid processes, and loads them up with high-cost private loan debt most of them would never be able to repay.

The lawsuit alleges that ITT, which serves tens of thousands of students at 149 campuses around the country and online, engaged in an elaborate scheme to “coerce” students into taking out institutional loans that “included 10 percent origination fees and interest rates as high as 16.25 percent” to fill the gap between what students owe and the federal financial aid they receive. ITT started making these loans in 2008, after Sallie Mae quit offering sub-prime private loans to for-profit college students because astronomical delinquency and default rates had helped throw its stock into a nosedive.

According to the complaint, ITT officials made these loans even though they knew full well that the vast majority of students who received them would not be able to pay them back. ITT projected that up to two-thirds of the loans would end up in default, the complaint states. For the company, these losses were more than offset by the federal financial aid dollars these students brought in. But for the students, defaulting on these loans leads to a spiral of debt that may literally ruin their lives. “Simply to enhance its financial statements and appearance to investors, ITT sacrificed its students’ futures by saddling them with debt on which it knew they would likely default,” the lawsuit says.

The lawsuit also alleges that ITT signed students up for these loans without revealing to them the actual terms and conditions of this debt. “Due to ITT’s handling of the financial aid process,” the complaint states, “many students either did not understand the loan obligations or were not even aware they had signed the ITT private loan contracts.”

Speaking on a conference call with reporters, Cordray made clear that ITT is not the only for-profit college company that has engaged in these types of “predatory lending tactics.” The lawsuit against ITT is “just the first step the Consumer Bureau is taking to address consumer issues in the for-profit college market.”

No one can accuse the CFPB of lacking guts.