ITT Bankruptcy Trustee Sues The Department of Education and Private Loan Trusts For Victimizing Students | Press Release

September 11, 2018

Project on Predatory Student Lending Calls On Department To Cancel All ITT Debts Immediately

BOSTON – The Trustee in the ITT Bankruptcy is suing the Department of Education and the financial backers of the PEAKS private loan program. These lawsuits reinforce the fact that ITT Tech should have been shut down many years ago, and instead was allowed to continue to operate to the detriment of students and taxpayers. They further recognize that the Department of Education and all complicit parties are liable for their role in enabling the predatory behavior of for-profit colleges.

The lawsuit against the PEAKS loan program cites the class action complaint brought on behalf of students by the Project on Predatory Student Lending. It alleges that ITT’s disgraced CEO Kevin Modany lied to students about the loan program, that the program existed to manipulate the 90/10 rule, and that “the PEAKS loan program was structured to thwart claims of defrauded students.” Moreover, the complaint alleges that ITT manipulated its campus data reporting and manipulated the job placement rates it submitted to its disgraced but likely-to-be-revived accreditor, ACICS. While this blatant chicanery continued under the Department’s watch, ITT created—by a conservative estimate—over $7.3 billion dollars in student loan debt.

The Project on Predatory Student Lending, which represents thousands of students in the ITT bankruptcy case, has been seeking documents from the Department of Education in the bankruptcy proceeding, to show how it is handling the debt relief claims of ITT students who were cheated by ITT. To date, over 11,000 former ITT students have lodged claims for loan cancellation with the Department, yet the Department has only processed a handful of such applications, leaving tens of thousands of claims to gather dust.  The Department continues to enforce ITT student loans, despite acknowledging that because of ITT’s “well-documented, pervasive, and highly publicized misconduct”… “the value of an ITT education…is likely either negligible or non-existent.”

The students’ proposed settlement with the Trustee in the ITT bankruptcy is pending. The settlement would recognize students’ $1.5 billion claim against ITT’s estate. The student class would receive some or all of this money if ITT’s estate makes a distribution at the end of the bankruptcy. The settlement would also cancel more than $500 million in debts held by the estate. $3 million has already been returned to students who had paid the company directly since it filed for bankruptcy.  The decision on whether to cancel the billions of dollars of outstanding federal student loan debt created by ITT remains with the Department of Education, which has refused to cancel the debts.

The following is a statement from Toby Merrill, Director of the Project on Predatory Student Lending.

“These legal actions by the ITT Trustee show once again how ITT based its business on cheating thousands of students for its own financial gain. The Department of Education continues to willfully ignore the facts as it collects on ITT student debt.

The Department of Education should stand up for students and cancel these debts right now. Instead, it continues to enable this type of predatory behavior. We will continue fighting alongside ITT students to get the justice and relief they are legally owed.”

Case Background: Villalba et al. v. ITT

ITT deceived and misled students about financial aid and costs of attendance, job placement and salaries, the quality of equipment and experience of instructors, the desirability of ITT graduates by employers, ITT’s programmatic accreditation, the transferability of its credits, and career placement assistance. The students’ allegations also included ITT’s use of high-pressure sales tactics to get students to enroll and remain enrolled. In January 2017, former ITT students filed a class complaint and proof of claim in the bankruptcy, laying the groundwork for the settlement proposal heard in January and expected to be finalized on June 13. For more information about the settlement, click here.

Over the last decade of its existence, ITT took in over $7 billion in student aid, the majority of which came in the form of federal student loans. Former ITT students have submitted over 7000 borrower defense to repayment applications to the Department of Education. Despite the clear case that students have a defense to the repayment of their loans because of ITT’s fraud, only a handful of those applications have been granted, and no new applications have been granted since January 20, 2017.

The student class is represented by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Jenner & Block.

About the Project on Predatory Student Lending

Established in 2012, the Project on Predatory Student Lending represents former students of predatory for-profit colleges. Its mission is to litigate to make it legally and financially impossible for federally-funded predatory schools to cheat students.

The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.

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