Five former ITT students have taken matters into their own hands by petitioning a federal bankruptcy court to consider student loan forgiveness as part of the school’s liquidation. The now defunct Corinthian Colleges or ITT Educational Services left students with worthless degrees and mountains of student loan debt. Because tax payers backed most of these loans, the Department of Education has been reluctant to forgive them.
For years federal regulators allowed ITT schools to keep operating, even though they were well aware of the company’s questionable practices. For example, ITT had been under investigation by the Education Department since 2014, and state regulators had accused it of misleading students about the quality of its programs and their job potential upon graduation.
The Consumer Financial Protection Bureau filed a lawsuit against ITT nearly three years ago, accusing the chain of predatory student lending. But even with all of this evidence it hasn’t helped former students of the college discharge their student loan debt.
ITT filed for bankruptcy last year after the Education Department cut off the school’s access to federal student aid. At the time, the company operated 137 campuses in 39 states. The company was successful for years, thanks to the revenues from federal student aid. Over the past 10 years, ITT students took on over $7 billion in debt; roughly $1 billion were private loans.
In a first of its kind approach, student loan borrowers will be at the table, not just banks and regulatory agencies fighting over ITT’s assets. They in fact contributed to the creation of assets at ITT. The five former ITT students involved in the suit are seeking to establish themselves and other former ITT students as creditors in the company’s bankruptcy. Typically a company’s creditors are people or entities to whom it owes money.
ITT reported assets of $389 million and liabilities of $1.1 billion to the bankruptcy court. The company had also deposited $94 million in escrowed funds with the Education Department before it collapsed. That money could go toward some loan forgiveness.
The company’s assets include almost $80 million owed by ITT students who were enrolled at the time of the bankruptcy filing or who had withdrawn funds within the previous 90 days. Some of the $80 million is likely from students who never even had the opportunity to attend a class because of the school’s collapse.
The lawyers fighting on behalf of the students hope the judge will make a legal finding that ITT violated state consumer protection laws. This would make it easier for the students to get their loans canceled by the Department of Education. The lawyers in the case are also requesting that the five students’ claims be asserted on behalf of all former ITT students.
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