Former Students Seek to Become Creditors in ITT's Bankruptcy

I previously blogged about the issues that led ITT Technical Institute to close its doors and file for bankruptcy.  Now, five former ITT students have filed a class action complaint against ITT in its bankruptcy proceeding.  The class action is filed on behalf ITT students who were harmed by ITT’s conduct.  Lawyers from the Project on Predatory Student Lending at Harvard Law School filed the adversary proceeding in the bankruptcy case, which is being overseen by Judge James Carr in the Southern District of Indiana. In addition to alleging violations of consumer protection statutes and breach of contract, the former students seek to establish the themselves as creditors in the company’s bankruptcy.

Students Describe ITT's Deceit

The adversary proceeding includes a large amount of testimony from former students, alleging and describing ITT’s extensive deceit.  The students claim that ITT held itself out to students as being a sound investment with guaranteed employment in their chosen career.  The students claim that the reality was the ITT deliberately underinvested in resources needed to help students with employment, leaving students with “an expensive but valueless credential.”  Some students also allege that they have had an easier time obtaining employment when their degree from ITT is removed from their resume entirely.

The students also claim that ITT did not fully inform them of the types of student loans they were obligating themselves to, and that they would pull students out of class to sign loan paperwork, not giving them time to review what they were signing.  Some students also testified that they were told the payments on their loans would be very low, when in fact they were $500 or more a month.  The students filed over a thousand first hand accounts of ITT’s practices along with the complaint.

In addition to the lawsuit, the former students filed a proof of claim on behalf of the class, stating that the minimum amount of their claim against ITT is estimated at $7.3 billion dollars.  That amount is derived from the total amount of federal and private student loans that students borrowed to attend ITT between 2006 and 2016.  The amount does not include any interest, grants, GI Bill benefits, or any expenses or damages by students. As stated in the complaint, “In the last ten years alone, ITT took in over $11 billion in revenue, including $8.4 billion in federal student aid. ITT generated this revenue almost exclusively by facilitating student loan debt. In the past ten years alone, by a conservative estimate, ITT created $7.3 billion in student loan debt, both federal and private. Lifetime default rates on these loans reach as high as 80%. ITT students, who earn on average the same or less than high school graduates with no college education, cannot sustain this debt. Yet, unlike ITT’s obligations, students’ debt cannot be discharged easily in bankruptcy.”

It will be very interesting to see how this lawsuit and the claim filed by the students are treated in court.  Aby Shafroth, a lawyer at the National Consumer Law Center, stated that the students’ filings in ITT’s bankruptcy is “...a creative approach to putting student loan borrowers at the table and making sure it’s not just the banks and some regulatory agencies fighting over the assets.  Think about the role and interests of the students, how they contributed to the creation of assets at ITT and what claim they should have to them.”  If you want to read more on this topic, you can visit the information page that Harvard Law School set up.

Student loans are such a large burden for many of our clients.  If you need to speak to an experienced attorney about your student loans or any debt problems you may be having, please contact one of our offices to set up an appointment.