(Adds comment from lawyer for CUSO, paragraph 7)
By Jonathan Stempel
June 14 (Reuters) - Former students at ITT Technical Institute will not have to pay $168 million they still owe on private loans from an affiliated lender to attend the now-defunct for-profit college, under a U.S. regulatory settlement announced on Friday.
Student CU Connect CUSO, created in 2008 to fund and manage loans for ITT students, reached the settlement with the Consumer Financial Protection Bureau, 44 states and Washington D.C. to resolve claims over its alleged shoddy business practices.
The accord also requires CUSO to stop collecting on loans, ask consumer reporting agencies to effectively delete its loans from students' credit profiles, and tell borrowers they no longer owe money on the loans.
Court approval is required. CUSO did not admit wrongdoing.
ITT Educational Services Inc, which ran ITT Technical Institute, closed its roughly 130 campuses and filed for bankruptcy in Sept. 2016, amid growing regulatory scrutiny of for-profit colleges' recruiting and financing practices.
The closure affected an estimated 35,000 students and 8,000 employees. Another large chain, Corinthian Colleges, shut down in 2015.
Susan Schwartz, a lawyer for CUSO, said in an email that the lender always acted properly in administering its student loan program, and "was a victim of, not an accessory to" any misconduct that many have occurred at ITT.
Authorities said ITT typically targeted vulnerable students by first issuing "temporary credits" to cover the gaps between their tuition and other federal aid.
Many students thought the credits were similar to federal loans and would not become due until after they graduated.
But when credits became due sooner, ITT pressured many students into taking out CUSO loans with initial fees as high as 10% and interest rates as high as 16.25%, according to authorities.
By Jan. 2017, CUSO was projecting an overall 94% default rate on its loans, authorities said.
Last November, a federal bankruptcy judge in Indiana approved a separate settlement forgiving nearly $600 million of ITT student debt. (Reporting by Jonathan Stempel in New York Editing by Susan Thomas and Grant McCool)