ITT Tech Students Negotiate $560M in Student Loan Cancellation

A proposed settlement would effectively cancel $560 million in private student loans burdening former students of the now-bankrupt ITT Technical Institute.

The settlement was negotiated by a group of former students who intervened in the ongoing ITT Tech bankruptcy proceedings.

Represented by Harvard University’s Project on Predatory Student Lending, the students argued ITT Tech fraudulently induced them into taking on excessive debt, giving them claims they can now assert as bankruptcy creditors.

The students seek to represent a Class consisting of hundreds of thousands of other former students who attended ITT Tech between at least as early as 2006 and the time the school closed in 2016.

If approved by the court, the settlement would bar the bankruptcy trustee from collecting, assigning or transferring about $560 million in debt that originated in loans ITT Tech made directly to students. These loans were typically made to cover the gap between total school costs and the funds otherwise available to each student.

The bankruptcy estate would also have to refund about $3 million in loan payments received since the bankruptcy began.

In total, the settlement recognizes a class claim of $1.5 billion against each of the bankruptcy debtors’ estates – significantly lower than the $7.3 billion originally asserted in the class proof of claim. A letter from the students’ attorneys says they will continue to seek cancellation of all ITT Tech-related student debt.

The court is expected to make a decision on settlement approval by the end of this month.

The Consumer Financial Protection Bureau sued ITT Tech in February 2014. According to the CFPB, ITT Tech lured students into debt using false or misleading statements about the schools’ accreditations, job placement rates, and transferability of credits. The schools allegedly induced students into taking out high-interest loans that they had little or no chance of repaying.

ITT Tech fought the CFPB’s lawsuit for several months with little success. After a federal appeals court declined ITT Tech’s petition for an interlocutory appeal, the company closed all of its nearly 140 campuses and initiated bankruptcy proceedings.

The student group intervened in the ITT Tech bankruptcy proceedings in January 2017 with a class action adversary complaint. Plaintiffs Jorge Villalba, James Eric Brewer, Joshua Cahill, Juan Hincapie and Cheryl House, all former ITT Tech students, alleged they were misled into over-borrowing for an education that did not provide them the benefits they were reasonably led to expect.

Attorneys for the students are encouraging other former ITT Tech students to file an individual proof of claim if they wish to participate in the proceedings and believe they qualify. If the student’s proposed Class is approved by the court, all other student’s claim will be incorporated into the Class claims and litigated by the attorneys representing the Class.

The ITT Tech Fraudulent Student Debt Class Action Lawsuit is part of the ITT Tech bankruptcy proceedings, In re:  ITT Educational Services Inc., et al., Case No. 16-07207-JMC-7A, in the U.S. Bankruptcy Court for the Southern District of Indiana.