As creditors of ITT Educational Services fight over the remaining assets of the defunct for-profit college operator, one group has secured a significant victory in the bankruptcy proceedings: former students.
On Wednesday, a federal judge gave final approval to a settlement that will erase nearly $600 million that 750,000 students owed ITT Technical Institute. The agreement, which was first announced in January, will also refund $3 million that students paid the for-profit chain.
Before shutting down in 2016, ITT issued students “temporary credits” to cover remaining tuition after federal and private student loans were taken into account. These credits were allegedly marketed as grants, but debt collectors pursued students for the money even after the company filed for bankruptcy.
“ITT routinely lied to hundreds of thousands of students,” said Lorenzo Boyland, 40, who attended ITT Tech in Tennessee from 2008 to 2010. “They targeted people who were eligible for federal loans and grants — including low-income people and veterans like me — and took advantage of our dreams and ambitions.”
Boyland is among the students involved in the lawsuit filed against ITT Educational Services last year to join the line of creditors, federal regulators, state attorneys general and employees seeking redress from the company.
Attorneys for the students asserted a $1.5 billion claim against the company for consumer-protection violations and breach of contract, and asked for status to cover anyone who attended ITT Tech between 2006 and 2016.
Wednesday’s agreement recognizes the claim. If there is money in the estate to pay unsecured claims — debts that are not assured payment — at the end of the bankruptcy, students would receive a share.
In the meantime, ITT’s estate has notified students who are eligible for the debt cancellation, according to the Project on Predatory Student Lending at Harvard Law School, a legal aid group that worked with the law firm Jenner & Block to represent the students.
“This settlement does more for the cheated students of predatory for-profit colleges than [Education Secretary] Betsy DeVos has done in her entire administration,” said Toby Merrill, director of the Project on Predatory Student Lending. “At a time when students are being ignored by their government, ITT students stood up to this predatory college themselves and secured the relief they are owed.”
Merrill is calling on DeVos to forgive the federal loans of ITT Tech students who have petitioned the U.S. Department of Education to cancel their debt under a statute known as borrower defense to repayment. The law, which dates to the 1990s, wipes away federal loans for students whose colleges used illegal or deceptive tactics to get them to borrow money to attend. Advocates for the students say ITT Tech did just that.
The chain was being investigated by more than a dozen state attorneys general and two federal agencies for alleged fraud, deceptive marketing or steering students into predatory loans. That legal morass led an accrediting body to threaten to end its relationship with the chain, which resulted in the Education Department curtailing ITT’s access to federal student aid.
Weeks later, the publicly traded company closed 137 campuses that served 35,000 students and employed 8,000 people. And days after that, the company filed for bankruptcy protection to liquidate its business.
In the wake of the school’s collapse, ITT Tech students have submitted more than 13,000 applications for federal debt relief, though only 33 have been approved, according to the legal aid group.
The Trump administration has stymied efforts to grant relief by refusing to implement an Obama-era revision of the debt-relief rule that sought to simplify the process and shift more of the cost of discharging loans onto schools. DeVos issued a more restrictive rule earlier this year, but advocacy groups and state attorneys general are fighting to have the courts force implementation of the Obama rule.
“While this settlement is a victory, we are still paying federal student loans that funded a school that no longer exists,” said Boyland, a veteran who amassed $52,000 in federal and private loans pursuing an associate degree at ITT Tech. “All I’m asking for — all any of us are asking for — is a fair shot and a fresh start. I just hope the Department of Education is listening.”