A federal judge approved a settlement Wednesday allowing former students at ITT Technical Institute to participate in the bankruptcy proceedings of its parent company, giving them a shot at the remaining assets of one of the nation’s largest for-profit college operators.
The agreement resolves a lawsuit students filed against ITT Educational Services last year to join the line of creditors, federal regulators, state attorneys general and employees seeking redress from the defunct company. It recognizes a $1.5 billion claim that students, who attended the school between 2006 and 2016, asserted against the company for breach of contract and consumer protection violations.
That means 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. The agreement must be approved by the full class of students involved in the lawsuit.
“Students are now stakeholders in this bankruptcy,” said Eileen Connor, attorney for the students. “The company was run into the ground, so we expect students to get cents on the dollar for the $1.5 billion claim, if anything. But if we hadn’t stepped in on behalf of students, they would still be facing debt collection for money purportedly owed to ITT.”
Under the deal, nearly $600 million that students still owed the defunct school will be erased, while $3 million that students paid the company will be refunded. ITT routinely 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 hounded students for the money even after ITT filed for bankruptcy in September 2016. The bankruptcy court halted collection in May, and now the accounts will be closed.
James Eric Brewer, 33, is among those whose debts to the school will be canceled. Still, he owes about $70,000 in federal and private student loans for an associate’s degree in computer network systems from ITT Tech in Indiana. Brewer has bounced from one contract job to another since graduating in 2012, never able to secure a full-time position.
“What I learned in college was outdated material,” he said. “There were times I thought there’s got to be more than this, but I was trusting the school to teach me the material I needed to know to be successful.”
Months before ITT Tech folded, Brewer petitioned the Education Department to cancel his federal student loans under a statute known as borrower defense to repayment. The law permits federal student loans to be discharged when schools use deceptive tactics to persuade people to borrow money for college. Yet almost two years have passed without resolution of Brewer’s application.
ITT Tech students have submitted more than 10,000 applications for debt relief, according to people familiar with the process who were not authorized to speak publicly. Barely three dozen of those applications have been approved by the Education Department; none has been approved since President Trump took office.
“The department continues to assess pending ITT claims and will utilize its newly announced improvements to the borrower defense discharge process to adjudicate these claims,” Education Department spokeswoman Liz Hill said.
Connor, who is also an attorney at the Project on Predatory Student Lending at Harvard Law School, said Wednesday’s settlement builds a case for the Education Department to grant full relief.
“The evidence that we presented the trustee convinced her that the ITT debts are not enforceable because of the company’s misconduct, despite her obligation to maximize the value of the estate for creditors,” she said. “All of that evidence is before the Department of Education, so there is absolutely no excuse for the department to continue collecting on the federal loans.”
The settlement does not address private loans administered by ITT, which ran an in-house lending program that is at the heart of two separate lawsuits filed by the Consumer Finance Protection Bureau and the Securities and Exchange Commission.
In 2016, ITT 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.
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