ITT Students’ $1.5 Billion Settlement Heard by Judge In Bankruptcy

Today, former ITT students proposed a $1.5 billion settlement claim in bankruptcy court that would cancel more than $500 million in debts. All participants in the case and members of the class have until April 24 to submit their views of the settlement with the court before it is heard for final approval on June 13.  This is good news for former ITT students, but there is still a long way to go.

ITT Tech systematically defrauded students. ITT lied to and misled students about financial aid and cost of attendance, job placement and salaries, the quality of equipment and experience of instructors, the employability of ITT graduates, ITT’s programmatic accreditation, the transferability of credits, and career placement assistance.

It would be simpler to list the things ITT didn’t mislead students about.

Data from 2014 show that on average, ITT graduates earn on average the same or less than high school graduates with no college education. Approximately one in five ITT students defaulted on their federal student loans within three years.

Now, a group of ITT students have reached a proposed a settlement with the bankruptcy estate that includes a $1.5 billion allowed claim. In addition to cancelling nearly $600 million in debts, the settlement would also return the $3 million that students paid directly to ITT after it declared bankruptcy. This landmark settlement shows that the only path forward is to cancel fraudulent and unenforceable debts created by predators like ITT.

The settlement is a good start, but there is still a long way to go to make things right for former ITT students.

More than 7,000 former ITT students have submitted borrower defense applications to the Department of Education to cancel their federal student loans. These loans – and the federal loans of all former ITT students, totaling nearly $4 billion – should be cancelled.  ITT’s estate has cancelled the student debts because of the school’s fraudulent actions, and it’s time for the Department of Education and all private holders of ITT debt to do the same.

As Paul Goodwin, a former ITT student, said: “I have still been struggling to pay back my student loans, which I should not even owe because of the way that ITT systematically lied to students. Getting more relief on temporary credit loans is great news for me and my family, but I am still waiting for the Department of Education to discharge my federal student loans.”

We will continue to fight for the Department of Education to meet its legal obligation to cancel these fraudulent student loans.

If you are a former student of ITT, click here to sign up for future updates.

Kensinger Named Co-winner of 2018 ABA Tax Section Spragens Pro Bono Award

Legal Services Center volunteer tax attorney Dale Kensinger has been named recipient of the Janet Spragens Pro Bono Award from the American Bar Association’s Tax Section. He will receive the award at a luncheon on February 10, when the Tax Section holds its mid-year meeting in San Diego, California.

The ABA Tax Section established the award in 2002 “to recognize one or more individuals or law firms for outstanding and sustained achievements in pro bono activities in tax law. In 2007 the award was renamed in honor of the late Janet Spragens, who received the award in 2006 in recognition of her dedication to the development of low income taxpayer clinics throughout the United States.”

The Janet Spragens Pro Bono Award is the only annual award given by the Tax Section.

Co-winner of this year’s award is co-winner is Kathryn Sedo.  Sedo directed the low income taxpayer clinic at the University of Minnesota for 35 years before her retirement in May 2016

Kensinger has been a tax lawyer for almost five decades. Through years of service he has demonstrated an ongoing commitment to pro bono activities assisting individuals with their federal tax obligations. He currently volunteers with the Federal Tax Clinic at the Legal Services Center (LSC) of Harvard Law School, and over the past several years he has volunteered an average of more than 500 hours per year both directly representing clients and assisting students with their cases.

Kensinger also played a vital role in assisting with the start-up of the Tax Clinic at LSC.

In 2012, LSC started a Veterans Legal Clinic. As the Veterans Legal Clinic became operational, its staff noticed that many of its clients needed assistance with tax issues. Because LSC did not have a tax clinic, the Veterans Legal Clinic sought a means of assisting its clients with their tax problems and providing holistic representation wherever possible.

Through conversations with tax lawyers in Boston, the Clinic director learned that the incredibly talented and dedicated former director of the University of Missouri-Kansas City Low Income Tax Clinic (UMKC-LITC) had retired and happened to be living in Boston in order to be nearer family.

A cold call to Kensinger in 2013, followed quickly by a meeting at the Legal Services Center to discuss the unmet tax needs of low-income veterans were all that the former UMKC- LITC director needed to be brought out of retirement. Soon, volunteer law students from Harvard were working under Kensinger’s expert tutelage and praising his kind, patient, and thoughtful mentorship.  As he began to help more and more clients — especially veterans — additional waves of clients began to seek the assistance of the new pro bono project.

As the client base grew, the Veterans Legal Clinic became convinced that it would be beneficial to start a tax clinic at LSC. Out of Kensinger’s volunteer work — and with his expert guidance — grew the Federal Tax Clinic at the Legal Services Center of Harvard Law School.

Current Federal Tax Clinic Director Keith Fogg — who first worked with Dale in 1977 when they were assigned to the same branch in the Refund Litigation Division of the Office of Chief Counsel, IRS—says “the award could not be going to a more deserving recipient.  Dale’s commitment to low income taxpayers provides a model for lawyers who still have much to offer as they enter the retirement phase of their careers.  We are extremely fortunate to have such a knowledgeable and caring volunteer working in the tax clinic.”

Dan Nagin, Director of the Legal Services Center and the person who recruited Kensinger to work in establishing the tax clinic, stated that “in short order after I reached out to Dale, he was enthusiastically heading a new pro bono project focused on tax at the Legal Services Center and representing scores of clients from the Veterans Clinic before the IRS.”

Kensinger graduated from University of Pennsylvania Law School and served in the military for three years during the Vietnam War era.  Upon the completion of his military obligation, he worked for over three decades with the Office of Chief Counsel, IRS, spending the bulk of his time in the Kansas City field office where he served for many years as the Assistant District Counsel.

After a distinguished career with the government, Kensinger began a second career as a professor and the highly successful co-director of the low income tax clinic at the University of Missouri, Kansas City.  During his time as the director of the low income taxpayer clinic at UMKC, he served in leadership on the Low Income Taxpayer Committee of the Section of Taxation for several years. Kensinger taught at UMKC for a decade before retiring again and moving to Boston in order that he and his wife could live near his daughter — a professor at Boston College — and help care for a granddaughter.

Proposed Settlement to be Heard January 24

A year ago former ITT students filed a complaint against ITT and a class Proof of Claim in the ITT bankruptcy case. In this last year we have worked hard to fight on behalf of the Student Class, including urging the Trustee to stop collection on all debt owed directly to ITT.

Today we are happy to announce that a motion was filed asking the court for preliminary approval of a proposed settlement between the Student Class and the Trustee. The proposed settlement agreement would recognize a $1.5-billion-dollar claim against ITT by students who attended the school between 2006 and 2016, for widespread, systematic fraud and breach of contract. The Students’ allegations included ITT’s use of high-pressure sales tactics to get students to enroll and remain enrolled. It was also alleged that ITT deceived and misled students about financial aid options and costs of attendance, job placement and salary rates, the quality of equipment and experience of instructors, the desirability of ITT graduates by employers, ITT’s accreditation status, the transferability of credits, and career placement assistance.

Some Key Terms of the Agreement

  • All of the nearly $600 million in “temporary credits” — accounts the company claimed students owed directly to ITT — will be canceled. This settlement only cancels debts that were owed directly to ITT and does not affect private or federal student loans.
  • All of the almost $3 million students paid directly to ITT since ITT declared bankruptcy in September 2016 will be returned to students, and there will be accurate credit reporting showing that these accounts have been deleted or paid in full.
  • The Students’ Proofs of Claim will be allowed in the amount of $1.5 billion as unsecured claims. If at the end of the bankruptcy there is money in the estate to pay unsecured claims, the student class will receive a proportional share based on the size of the allowed claim. Any amount distributed to the student class will be divided among the entire student class, and the distribution must be approved by the court.
  • In exchange for the allowed claim, former ITT students give up their claims against the estate of ITT, and keep their rights to seek further relief from the Department of Education and private lenders.

The motion and the settlement agreement will go before the court for preliminary approval on January 24, 2018. If the court grants preliminary approval, there will be a period of time for student class members to review and comment on the agreement and also choose not to participate. After that, we will seek final approval of the settlement from the court.

In our view, the proposed settlement agreement is a victory for former students who were defrauded by ITT. However, we know that the student class still faces billions of dollars of federal and private student loans from ITT and we will continue fight for all ITT-related debt to be canceled.

Tax Clinic Student Argues Case Before US Court of Appeals

In December, Amy Feinberg ’18 became the second Federal Tax Clinic student to have the exhilarating experience of arguing an appeal in circuit court since the Clinic opened at Legal Services Center of Harvard Law School in 2015.

Clinical Professor of Law Keith Fogg, who directs the Federal Tax Clinic, notes that many attorneys can be practicing for 10 or more years before they get the kind of experience that Feinberg has gotten while taking the Clinic.

Other students  have had the opportunity to file amicus briefs and help prepare appeals for court.  All students work directly with clients and carry a docket of cases. And almost all have the opportunity to negotiate directly with the IRS and state tax authorities – experiences that many lawyers seldom get, even if they are tax attorneys.

“The opportunity to appear in the circuit courts, file amicus briefs, and to promote law change through policy advocacy if necessary is an outgrowth of a strategy that the Federal Tax Clinic has developed to assist taxpayers, many of whom are low income, who have missed the deadline to file a petition in the United States Tax Court by one or more days because of misleading information or notices sent by the IRS, “ Fogg says.

Learn more about Feinberg’s experience and the work of the Federal Tax Clinic on this issue here.

Department of Education Illegally Slashes Debt Relief for Corinthian Borrowers

Martin was talked into WyoTech’s automotive technology program instead of community college. But the program was a complete fraud – he rarely touched a car while there, and the great jobs promised to him were unavailable. The Department of Education acknowledged that Martin was lied to and misled, and he applied to have his federal student loans from WyoTech discharged. Still, the Department has seized two years of Martin’s tax refunds and garnished his wages to pay back his federal loans from this fraudulent institution.

This isn’t just wrong, it’s illegal. By announcing that it was illegally attempting to slash the relief available to borrowers, the Department is engaging in the same bait and switch tactics as Corinthian—which owned Heald, Everest, and Wyotech.

That’s why this week, Martin and two other named plaintiffs filed a filed a nation-wide class action against the Department of Education for illegally and unfairly denying complete relief to tens of thousands of former Corinthian students who the Department already decided are entitled to have their loans discharged and their payments refunded.

The borrowers are represented by the Project on Predatory Student Lending at the Legal Services Center of Harvard Law School, and Housing and Economic Rights Advocates of Oakland, California.

The three named plaintiffs in this suit are just three of many thousands of people who have experienced the systematic exploitation and fraud that for-profit colleges have engaged in –fraud that is enabled by taxpayer funds and the Department of Education.

  • Martin Calvillo Manriquez barely had an opportunity to touch cars or car parts while he was enrolled in his automotive program. The school didn’t have tools or certified instructors. Martin has never had a job related to auto repair. His debt from Corinthian is the only line on his credit report.
  • Rthwan Dobashi owes more than $20,000 for the same program. He has also never worked in the field. He is married, has two children, and is expecting a third. In early 2016, he found out from the attorney general that he was eligible to have his debts from WyoTech cancelled, and he applied. He also told one of his friends from school, and his friend applied, too. His friend’s loans were discharged almost a year ago, while Rthwan still hasn’t heard anything from the Department.
  • Jamal Cornelius attended the Information Technology-Emphasis in Network Security program at Heald College, and borrowed more than $25,000. He has been waiting more than fourteen months for any response to his application for relief.

All three borrowers, and all class members, are entitled to relief pursuant to the Department’s Corinthian Job Placement Rate Rule, which it has established through countless public statements, previous discharges, and direct notice to tens of thousands of covered individuals.

After we filed this case, the Department announced that it would slash the loan cancellation for defrauded borrowers who attended schools owned by Corinthian Colleges – departing from the established rule and illegally applying changes retroactively. It is completely unlawful for the Department to go back on its word in this way.

These students were already lied to by Corinthian. Now they have been lied to by the federal government, too.

Tax Lawyer from India Describes Her LSC Federal Tax Clinic Experience

Varsha Bhattacharya L.L.M. ’18  is a tax lawyer hailing from India who previously dealt primarily with corporate clients and is now getting an L.L.M. degree at Harvard Law. As a student  in LSC’s Federal Tax Clinic, she not only needed to learn an entirely new body of tax law and administrative proceedings, she also found herself working with low-income individuals rather than corporations.   As she notes:  “A lot about getting the work right lies in caring about the client. The moment I call a client, hear their story, and feel a direct connection with them, as their representative I feel a greater responsibility to give them the best chance in their cases.”  Learn more

Kaplan Has Been Exploiting Veterans

For-profit colleges have exploited the promise of higher education by deceiving tens of thousands of students seeking a better life. One of the groups the for-profit industry has particularly targeted are veterans and servicemembers.

That is why the Project on Predatory Lending represented the Veterans Education Success organization to prepare a new report outlining the predatory actions of one for-profit institution, Kaplan Colleges and University, against veterans and servicemembers.

VES collected complaints from nearly 100 veterans who attended Kaplan-owned programs. Their complaints include things like:

  • Raising the costs on veterans once they enroll and failing to inform them of additional fees;
  • Misleading veterans about their military benefits covering the tuition costs, resulting in unexpected and burdensome debt; and
  • Borrowing money on behalf of veterans without their consent.

Unlike the for-profits colleges that are forced to shut down when their fraudulent behavior is exposed, Kaplan is still an active and functioning college. In fact, Kaplan University was just purchased by Purdue, a public university in Indiana, to conduct its online programs. And the Department of Education just approved this transaction, which will remove some of the protections for borrowers and taxpayers that apply only to for-profit schools not conducting business under the auspices of public entities.

We hope you will read the full report to understand the extent of the predatory behavior by Kaplan.

Click here to read the report.

Military servicemembers and veterans deserve our respect and gratitude. And, like all students, they deserve to seek higher education without facing fraudulent and unscrupulous companies trying to extract federal funds. Kaplan’s actions run directly counter to that. It’s time for the government to step in to help, or they too will have failed in their duty to support veterans who have sacrificed so much for us all.

Negotiated Rulemaking Reconvenes in Washington D.C. for Act Two of Regulatory Theater

This week, in a conference room in Washington D.C., various stakeholders of the federal student aid programs will meet to discuss whether there should be any check on the cost and value of vocational training programs that receive public money.  The negotiated rulemaking committee formed by these various stakeholders, and representatives of the Department of Education, will meet several more times before the for-profit college industry will get to write the “gainful employment” rule that will pose the least difficulty to its business model early next year.

Act one of a similar regulatory theater took place last month, when the Department convened a negotiated rulemaking on the topic of borrower defense, the process by which student borrowers who have been cheated by their schools can seek loan cancellation.  This rulemaking will likely displace the borrower defense rule enacted just last year, which the Trump administration delayed after taking office.

As someone who represented the legal aid constituency in the most recent negotiated rulemakings on gainful employment and borrower defense, I understand why these two regulations are the focus of the Department’s regulatory agenda.  If allowed to operate, both borrower defense and gainful employment would bring a measure of accountability to an industry that continues to do seemingly everything imaginable to discredit itself.

As a negotiator on the 2013 gainful employment rulemaking, I tried unsuccessfully to convince the Department that loan cancellation is a necessary component of any gainful employment regulation.  It seems obvious that students who borrow to attend a program that purports to provide skills necessary for a vocation, but which on the whole fails, have been cheated.  And the Department plays a role. It is supposed to act as a gatekeeper. No matter how many fine print disclaimers the Department may make, disavowing any role in assessing the quality of program a borrower decides to attend, the ability of a student to borrower loans from the government to pay for education sends a strong signal that the program must be a good one.  Why else would the government be willing to lend money?

In 2013, on behalf of the legal aid community, I proposed that the Department recognize gainful employment metrics as the basis for an affirmative borrower defense by students who attended failing programs.  In response, the Department proposed to amend the borrower defense regulation—not the subject of the rulemaking—to specify that gainful employment metrics could NOT form the basis of borrower defense.  Then it went a step further, and proposed eliminating the borrower defense regulation altogether.  We were able to defeat this proposal, but the final rules on gainful employment did not contain any provision for loan cancellation for students who attended programs that by the Department’s own definition provided more debt burden than value.  Although the Department recognized “the desire to ease the debt burden of students,” the “issue requires further consideration” and therefore the Department “will continue to explore ways to provide debt relief to students in future regulations.”

This was in October 2014, almost two years after the Department had requested information from Corinthian Colleges, Inc. regarding its placement rate data, and several months after the Department placed the company on heightened cash monitoring, restricting its ability to draw down federal student aid.  Within six months, before the gainful employment rules would even go into effect, the Department had fined Corinthian for misleading students, precipitating the school’s closure and bankruptcy.

Later in 2015, the Department convened the first borrower defense rulemaking because of a “building debt activism movement.” Every student loan contract since the mid-1990s has, in line with guidance from the Federal Trade Commission and Congress, provided for loan cancellation upon a showing that the loan was the product of school misconduct. The Department has said on multiple occasions that it was caught off guard by borrower defense, as it had only received a handful of such claims in the decades prior to 2015.  But that year alone, it would receive tens of thousands of applications.  The first tide of applications came from students organized by the Debt Collective, an organization that stepped into the void between rights and remedies for borrowers.  The Department didn’t have any process or even a form for borrowers to assert this contractual right until the Debt Collective created one.

Thirty thousand people have gotten justice in the form of loan cancellation because of borrower defense.  There are close to 100,000 applications pending.  The majority of these claims have been from students of Corinthian Colleges. Second behind Corinthian is ITT, a school that declared bankruptcy in 2016.  Not coincidentally, close to 80% of ITT’s programs would not have passed the gainful employment regulations.

The writing was on the wall when the Department tried to stealthily remove the borrower defense regulations in 2013.  And it is no less clear today than it was then that there is a massive problem with the federal student aid program.  This program was intended to alleviate rather than reify, or worsen, the wealth gap in our country.  Those looking to obtain the basic skills and credentials that the labor market now requires for entry-level positions in trades should not have to take on massive amounts of debt that they will never be able to repay, even under the best-case employment scenario.  And the Department should not enable this zero-sum game between students and an industry that takes taxpayer dollars as revenue and creates a near dollar-for-dollar wake of individual debt.

Thankfully, despite the current climate, I see no indication that this genie will ever go back into the bottle.  Even the Higher Education Act reauthorization bill introduced in Congress last week, in all of its meanness, did not go so far as to take away the right of students cheated by for-profit schools to seek loan cancellation.  The longer this industry survives, the more debt it creates without returning any value to society, the closer we come to a reckoning.  No matter what happens this week in a conference room in Washington D.C.

Project on Predatory Student Lending’s Director of Litigation, Eileen Connor, selected for the 2017 “Rising Star” award from the National Consumer Law Center

The Project on Predatory Student Lending’s Director of Litigation, Eileen Connor, has been selected for the 2017 “Rising Star” award from the National Consumer Law Center for her significant contributions to consumer law. Eileen’s award comes as a result of her Second Circuit victory in the case Salazar v. King. Her clients were defrauded by the predatory practices of the now-defunct Wilfred Beauty Academy.

Wilfred, a for-profit chain of cosmetology and business trade schools, came under government investigation in the 1980s for the misuse of student aid funds and the falsification of loan applications. The result of the investigation was an overwhelming amount of evidence proving Wilfred’s fraud in certifying students’ eligibility for loans. In 1996, the Department of Education found that Wilfred’s fraudulent practices were widespread and recommended that all Wilfred students who were improperly enrolled receive a loan discharge, reimbursement for money they had paid, and a restoration of their credit. Despite its own recommendation, the Department continued to collect on these loans, including through involuntary collection methods such as seizing tax refunds and garnishing wages.

After the Department refused Eileen’s request that it suspend collections and notify all Wilfred borrowers that they may be eligible to discharge their loans, as it was required to do by law, Eileen filed this class action lawsuit in 2014. She challenged the Department’s refusal to meaningfully notify borrowers of discharge rights – rights that stem from the Department’s own failure to diligently oversee the predatory for-profit schools participating in the federal student loan program. The Second Circuit found that the Department’s refusal to notify borrowers was final and reviewable, and that judicial review was especially appropriate given the collection powers the Department exercised against the putative class members.

The Second Circuit’s ruling cracks open the door to relief for defrauded borrowers by showing that, in carrying out each and every function related to the federal student loan program, the Department must at least follow the law and its own regulations.

Eileen’s tenacious advocacy was carried out over more than three years, including before an administrative agency, a district court, and the Second Circuit. Salazar is an important and unfortunately rare case that begins to rein in the lawless and harmful approach that the Department of Education takes with respect to the rights of defrauded student loan borrowers. In short, the recognition is well-deserved. The Project on Predatory Student Lending congratulates Eileen on the award and thanks her for her tireless and inspirational leadership. We look forward to celebrating her advocacy at the National Consumer Law Center’s Consumer Rights Litigation Conference this week.

Is VA Wrongfully Excluding Hundreds of Thousands of Veterans from Needed Care

In a publication of the Penn State Law Review, Dana Montalto of the Legal Services Center of Harvard Law School, along with colleague Bradford Adams of Swords to Plowshares, provides a legal history and analysis of how the Department of Veterans Affairs (VA) determines who is eligible for basic health care and support services – and who should be excluded.  Although the 1944 GI Bill of Rights makes clear that only those veterans who “engaged in severe or repeated misconduct without explanation” should be barred from receiving benefits, Montalto and Adams argue that the VA incorrectly interprets the law, thereby unfairly preventing hundreds of thousands of former service members from receiving needed benefits.

Since World War II, the VA has been required to provide veterans’ benefits to all service members who left under conditions classified as “other than dishonorable,” so that only those who received or should have received a “dishonorable discharge” should be barred.  Service members who engaged in less severe misconduct, who were experiencing mental illness, or who suffered from other hardships should still be eligible for benefits.  Montalto explains that the VA has improperly implemented Congress’s statutory standard, excluding former service members for minor disciplinary problems during service and failing to consider extenuating or mitigating circumstances.

Montalto and Adams propose that the VA adopt a more holistic approach when determining whether a veteran is eligible for benefits.  Some changes to the VA’s eligibility review procedure could include starting with a presumption of eligibility instead of ineligibility for former service members, including a consideration of positive or mitigating factors in each eligibility case, and providing access to basic healthcare while eligibility reviews are pending.

Read the entire article at http://pennstatelawreview.org/wp-content/uploads/2017/11/Adams-Montalto-article.pdf

For more information regarding the Veterans Legal Clinic’s advocacy on behalf of veterans with bad paper discharges, read the following publications:

https://www.swords-to-plowshares.org/wp-content/uploads/Underserved.pdf

https://www.swords-to-plowshares.org/wp-content/uploads/VA-Rulemaking-Petition-to-amend-regulations-interpreting-38-USC-10122.pdf