ITT Trustee to Stop Collection on All “Temporary Credit” Accounts

MAY 19, 2017

On May 18, the court overseeing ITT’s bankruptcy case approved a motion to stop collection on all ITT “Temporary Credits.” ITT used unfair and deceptive tactics to get students to sign up for Temporary Credits, including by describing Temporary Credits as grants and threatening to expel students if they did not agree to the debt. Even after ITT filed for bankruptcy, its servicers and debt collectors continued to harass students to collect these Temporary Credits.

Former ITT students have consistently objected to ITT’s ongoing collection efforts. In January, the Project on Predatory Student Lending filed an adversary complaint in the bankruptcy case on behalf of hundreds of thousands of former ITT students, arguing that the debts were incurred as a result of ITT’s unfair and deceptive practices and asking the court to block the estate from collecting these accounts. The students then objected to the trustee’s request to hire more contractors to try to collect these Temporary Credits. The class of former students is currently represented by the Project on Predatory Student Lending and Jenner & Block LLP.

Former ITT students are gratified that the trustee has now decided to stop pursuing these accounts. Stopping collection on Temporary Credits is an important first step, but any ongoing collection on ITT-generated debt continues to harm students unjustifiably. Former ITT students continue to face collections on billions of dollars of federal and private student debts that the company generated by its unfair and deceptive practices.

For more information about students’ claims against ITT, click here.

FOR FORMER ITT STUDENTS:

As of yesterday, if you have Temporary Credits from ITT that were serviced by United Accounting Services (UAS), FirstSource/One Advantage or other collection agencies (Premiere Credit NA, General Revenue Corporation, and Security Credit Systems), you should no longer submit any payments. In the next few weeks, the trustee will send out a notice to those students who are affected. In the coming months, the trustee will calculate refund amounts for only those students who continued to make payments on their Temporary Credits after ITT filed for bankruptcy.

ITT issued Temporary Credits to students to pay tuition not covered by federal and private student loans. Many Temporary Credits were later converted to private loans, including Student CU Connect CUSO and PEAKS loans—these debts are no longer considered Temporary Credits. The debts that were not converted to private loans are still considered Temporary Credits, and have been serviced by UAS & FirstSource on behalf of ITT.

This ruling does NOT apply to other types of ITT-related debt, including federal loans, private bank loans, Student CU Connect CUSO loans, or PEAKS loans. This ruling also does not apply to any debt that is not ITT-related, even if UAS or FirstSource are collecting on those debts.

Stopping collection on Temporary Credits is an important first step, but it does not solve all of the problems ITT caused, including federal and private loan collections. The ITT trustee can stop collection on Temporary Credits because ITT’s estate still owns those accounts. The trustee does not own the federal loans or most private loans. Therefore, the trustee has less control over these loans. Below are updates on the status of a few other types of ITT loans:

  • Federal Loans. The Department of Education acknowledged that over $3 billion ITT-generated loans could be eligible for borrower defense discharges. The Department of Education has received over 2,000 applications from ITT students, but to date, we are not aware of any borrower defense discharges granted to ITT students. We will continue to advocate for the Department to grant borrower defense discharges to former ITT students.
  • Temporary Credits converted into accounts with Student CU Connect CUSO/PEAKS. These accounts are currently outside the control of the ITT trustee. These accounts are the subject of multiple investigations, and we are advocating on behalf of students to discharge these accounts.
  • All other private student loans are not part of ITT’s bankruptcy proceeding right now.

Click here to sign up for future updates.

 

 

Project on Predatory Student Lending Statement on Proposed Sale of EDMC to Dream Center Foundation

Last Friday, for-profit college giant Education Management Corporation (EDMC) announced the sale of many of its campuses to the Dream Center Foundation. The acquisition would convert three of the corporation’s chains—the Art Institutes, Argosy University, and South University—into nonprofits. EDMC will retain ownership of the Brown Mackie chain, which is shutting down most of its campuses, and the 19 Art Institute campuses the corporation is in the process of shutting down.

EDMC’s conversion to nonprofit status raises critical questions, including how the corporation intends to ensure positive student outcomes once it is no longer subject to gainful employment regulations. EDMC has more than 130 programs that the federal government has found to burden graduates with unmanageable student loan debt—programs that will be subject to even less federal oversight once they have been sold to a nonprofit. EDMC’s compliance with federal requirements attached to the receipt of federal Title IV funds will be even more critical once the corporation is no longer subject to the “90-10 rule,” which prevents for-profit colleges from receiving more than 90 percent of their revenues from such funds.

Like the last-ditch sale of many Corinthian campuses as that company failed, this sale leaves failing schools with EDMC, while selling off assets that may still have value to a new entity that may disclaim liability for the acts of its predecessors. This type of transaction leaves former students struggling with unmanageable debt even more completely without recourse.

Less than a year ago, EDMC tried to sell the New England Institute of Art, an Art Institutes campus in Brookline, Massachusetts, to a university based in India. The deal was scuttled after the corporations failed to obtain state approval. As EDMC’s equity holders continue to try to divest themselves of these assets, regulators should demand assurances that whoever owns the schools will operate them in the interests of students.

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The Project on Predatory Student Lending represents a group of former students who attended the EDMC-owned New England Institute of Art. In September, these former students demanded that the companies remedy the harms they had caused to students and their families. The Project and Public Justice are currently challenging the federal government’s refusal to provide documents shedding light on EDMC’s recruiting practices.

Project on Predatory Student Lending Sues Federal Government For Withholding For-Profit College Corporation’s Recruitment Records

On February 14, the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School filed a Freedom of Information Act (FOIA) lawsuit, challenging the government’s refusal to provide documents shedding light on for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

Months ago, the Project filed a FOIA request with the Department of Justice (DOJ), seeking access to these documents. DOJ claimed that it couldn’t release the documents (in part) because it said there was a court order preventing it from doing so. The Project disagreed. So, together with Public Justice, we asked the court that issued the order to clarify that the order does not, in fact, prevent DOJ from releasing the documents.

Soon after we asked the court for clarification, however, DOJ changed its tune entirely. It now claims that the public has no right to access these documents, even though they were produced to the government by a corporation the government alleged defrauded it of billions of dollars, and would enable the public to evaluate the government’s decision to settle its claims for less than one percent of what it had originally said they were worth.

The lawsuit challenges the government’s assertion that the public has no right to these important documents.

Two Federal Lawsuits, Still No Documents

Federal regulations allow student loan borrowers to seek cancellation of their federal student loans by showing that their school violated state law. Former students of the Art Institutes and other EDMC-owned chains thus want the documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to support their claims of misconduct.

The Attorney General of Minnesota—one of the states that participated in the case—expressed support for the Project’s efforts, stating that the information requested by the Project “could aid students in their efforts to obtain loan forgiveness from the United States Department of Education, which would unburden them from thousands of dollars of debt.”

The Project has made a significant effort to obtain these documents—filing a freedom of information request, litigating the government’s denial of that request, and moving to intervene to challenge the government and EDMC’s efforts to keep the documents secret—because the documents are critical to the Project’s advocacy on behalf of low-income student loan borrowers. The documents will help the Project seek relief for former students of EDMC-owned schools; inform the public about the practices of for-profit education companies and the government’s oversight of those companies; and advocate for policies that will protect low-income student loan borrowers.

Background: Government Lawsuit Against EDMC

EDMC, a corporation that has been closely associated with Goldman Sachs for years, runs four large chains of for-profit schools, including the beleaguered Art Institutes. In 2011, the federal government, along with several states, sued EDMC, alleging that it violated state and federal law and then lied about it to get government funding. The government claimed that, to maximize enrollments, EDMC illegally paid its “admissions employees” based on the number of students they could enroll; “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up; taught its recruiters to exploit prospective students’ vulnerabilities; and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, less than one percent of the more than $11 billion in taxpayer-funded federal student grants and loans that the government alleged EDMC received between July 2003 and the suit’s filing. The settlement did not relieve students of any of the federal student loan debt they took on to attend EDMC-owned schools.

Documents Related to This Case

  • Freedom of Information Act Requests, Appeal, and Complaint:
  • Intervention (Dec. 2016):

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.

Update: January 30th ITT Bankruptcy Hearing

On Monday, January 30, the judge in ITT’s bankruptcy granted former ITT students’ request that they be recognized as having filed a group claim despite the trustee’s objection, and recognized the Legal Services Center of Harvard Law School as students’ counsel for this initial stage of their case. Former ITT students requested this group recognition as part of their initial filing on January 3. Although the trustee for ITT’s estate filed a vigorous objection to the former students’ request, Judge Carr agreed with the former students that it was unquestionably appropriate to permit former students to file their claims as a group, rather than individually.  The judge ordered the trustee to meet with the students’ lawyers to begin discussing the issue of class certification in students’ adversary proceeding against ITT’s estate.

The judge also denied—for now—the trustee’s motion to hire a company as a “master servicer,” to supervise ongoing collections by UAS and FirstSource, and to begin collecting on more accounts. Former students objected to this request, arguing that, by undertaking a broad new debt collection campaign on fraudulently-incurred and otherwise poorly-documented debts, the trustee would confuse former students and expose ITT’s estate to liability for collecting bad debts. The Trustee disclosed that the Consumer Financial Protection Bureau had also warned that collecting on ITT’s accounts was likely to cause future legal problems, and acknowledged that many of the accounts were likely not collectible. The trustee argued that the estate should nonetheless be allowed to hire the firm as master servicer, but Judge Carr denied the request for now, ordering the lawyers for the trustee to meet with lawyers for former students to discuss their positions on continuing debt collection against former ITT students.

The court scheduled a status conference with former students and the Trustee on February 9 to discuss both of these topics.

For more information about students’ claims against ITT, click here.

New York Times Calls Former ITT Students’ Legal Action ‘Gratifying’

“It seems only right that victims of predatory for-profit education companies should have their student loans forgiven,” the article begins. It goes on to discuss the validity of students’ claims, their difficulty in getting debt relief, and the thousand of pages of “powerful testimony” submitted with the students’ complaint. As the article explains, the evidence shows “a pattern of practice that dispels any notion that bad behavior harmed just a handful of ITT students.”

Read the full article: Student Victims Seek to Become Creditors in ITT Bankruptcy

Challenge to Secrecy of Recruitment Records from For-Profit Education Company

The Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Public Justice asked a federal judge on Friday, December 16, for access to documents that are likely to reveal for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

A few years ago, the federal government, along with several states, sued EDMC, whose four large chains of for-profit schools include the beleaguered Art Institutes, alleging that it violated state and federal law and then lied about it to get government funding.  The government claimed that EDMC illegally paid its recruiters based on the number of students they could enroll, a practice prohibited by federal law.  EDMC, the government alleged, “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up. To maximize enrollments, the lawsuit alleged, EDMC taught its recruiters to exploit prospective students’ vulnerabilities, and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, much less than the $1.47 billion the company received in taxpayer-funded federal student grants and loans in the 2014-2015 year alone.  But as part of discovery in the suit, EDMC produced a lot of documents that we believe will shed light on their recruitment practices. “The documents from this lawsuit are likely to strengthen claims for relief of hundreds, if not thousands, of former EDMC students,” said Amanda Savage, one of the attorneys representing the debtors.

Former students of the Art Institutes and other EDMC-owned chains want these documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have so far been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to corroborate their claims of misconduct.

“While taxpayers spent hundreds of millions of dollars funding what the Department of Justice has called EDMC’s ‘recruitment mill,’ the borrowers who attended these schools have yet to obtain federal debt relief,” said Public Justice attorney Jennifer Bennett.

Before filing this lawsuit, the Project tried to get these documents showing EDMC’s predatory recruitment practices through federal and state freedom of information requests, but its request was denied in part because of a protective order in the case. The Project asked a federal judge to rule that the protective order does not shield the documents.

Documents Related to This Case

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.

Class of Former ITT Students File 7.3 Billion Dollar Claim in ITT Bankruptcy

On January 3, 2017, a group of former ITT Tech students moved to intervene in ITT’s bankruptcy proceedings in the Southern District of Indiana. They seek to act as representatives of hundreds of thousands who have been defrauded by ITT.

Along with legal documents, the students filed over a thousand pages of first-hand accounts from students who attended ITT, affidavits from several whistleblowers, and evidence developed from state and federal law enforcement investigations. The CFPB and multiple state attorneys general are also parties in the bankruptcy proceedings.

For more information on the student intervention, including all of the documents that were filed, background on ITT, and explanations of the legal actions taken today, click here.

Project on Predatory Student Lending Seeks an Intern

The Project on Predatory Student Lending is seeking an intern to begin in January or February of 2017. Responsibilities will include interacting with clients, organizing and analyzing case files, and working with attorneys and clients to confirm facts, obtain documents, and create affidavits. A commitment of 7 to 15 hours per week at the Legal Services Center is preferred.

This is a great position for undergraduate students interested in law and social justice.

Ideal applicants will have excellent written and oral communication skills, cultural competency, attention to detail, and excellent judgment. An ability to speak Spanish is appreciated but not required. Legal experience is not required.

Interested candidates can find more information about the internship here.

Department of Education’s Latest Borrower Defense Report Reveals Unfair & Unjustified Limitation on Relief

As lawyers who work with people who have been defrauded by for-profit schools, we support the U.S. Department of Education in its stated mission to “make the process of forgiving loans” for such students “efficient, transparent, and fair—and to ensure students receive every penny of relief to which they are entitled under law.”  These were the words of U.S. Education Under Secretary Ted Mitchell, when he announced on June 25, 2015 that the Department designated a Special Master to oversee debt relief for borrowers defrauded by Corinthian Colleges.

Indeed, parts of the final borrower defense rule released by the Department today are positive steps toward providing relief to defrauded students and preventing fraud and abuse of students and taxpayers by unscrupulous schools.  Notably, the Department has banned the use of forced arbitration agreements that serve to suppress the claims of students and mask illegal behavior; identified circumstances that will require schools to post letters of credit when warning signals indicate that the school may be violating the law; and sketched the outlines of a process that has the potential to create a path to relief for individuals and groups of defrauded borrowers.

The Project and other members of the legal aid community submitted comments asking the Department to strengthen this rule and make it more transparent and fair.  Most of our suggestions were not adopted.  In one area in particular—the application of statutes of limitation to a borrower’s ability to recover money already paid toward an illegitimate debt—the Department has departed in an inexplicable and inexcusable way from its commitment to giving defrauded students “every penny of relief to which they are entitled.”

The Department has decided that borrowers can only receive a refund of money already paid on a loan if they raise a claim within six years.  More troubling, in the Report issued today by the Department’s Borrower Defense Unit, the Department has announced that 293 claims from Corinthian borrowers – based on misrepresentations made about the general transferability of credits – are “eligible for relief subject to the applicable state statute of limitations.”  Although it is not entirely clear what this language means, it appears that the statute of limitations will act as a bar to the return of money these borrowers already paid towards Corinthian debt.

This is a mistake that the Department should fix.  Its application of a statute of limitations is entirely discretionary.  In crafting its new rule, the Department had the choice whether to impose such a requirement.  And even for loans already issued, the Department’s regulations clearly specify that once a borrower establishes a defense to the repayment of a loan, the Department may award additional relief, including the return of amounts already paid.

A statute of limitations serves a purpose in the law. It can give private parties comfort that what is in the past is in the past. It also encourages those with legal claims to come forward, while evidence is still fresh.  But there is absolutely no basis for punishing borrowers with a statute of limitations on the theory that they have been sitting on their rights.  As the Department has acknowledged, it needed to undertake this rulemaking precisely because, despite the decades-long existence of borrowers’ right to a defense to repayment, it had failed to enact procedures or notify the borrowing public of how to avail itself of this right.  In fact, it was only in August 2014 that the Department publicly acknowledged that although regulations “explicitly provide” for borrowers in default to assert defenses to repayment, “a borrower who is not in default can also assert a claim that the loan is not legally enforceable.”  This was in response to requests for information regarding Corinthian from Senator Elizabeth Warren and others.

Even if the Department were bound to apply a statute of limitations to limit recovery for defrauded borrowers—and it is not—its limited statements give no indication of exactly how it proposes to apply it against individual borrowers.  As announced today, in the new regulation, the Department abandons longstanding state consumer protection law as the substantive basis for borrower defense, determining that state law is too “complicated, uneven, and burdensome.”  This is exactly the problem with applying statutes of limitation to existing loans.  State laws vary in their application of statutes of limitation, both in length of the time period and circumstances in which a claim is barred.  In addition, equitable doctrines provide for the tolling, or pausing, of a statute of limitations in circumstances where a defendant fraudulently concealed the basis of a claim.  In other instances, a statute of limitations clock will not even begin to run until the claimant “discovers” that she or he has a claim. In the circumstance cited by the Department, a person who attended Corinthian because they were lied to about the possibility of transferring credits to another institution may have only discovered that this was a lie when they attempted to transfer credits and were denied.  How will the Department engage in this analysis for each individual, especially when it has not made clear to applicants that such evidence is needed?

These problems highlight three steps that are absolutely critical if the Department is to make good on its promise to give borrowers all of the relief to which they are entitled.

First, the Department should abandon any imposition of a statute of limitations on borrower defense claims. Borrowers who submit discharge claims years after enrolling in a predatory school do so because they were not previously aware of the scope of their school’s misconduct, or of their rights and how to pursue them. This fact is regularly borne out in our experience working directly with student loan borrowers who have suffered for years after being taken advantage of by their schools without realizing they had a right to have their loans discharged. It is also demonstrated by the Department’s own acknowledged difficulty reaching people who are eligible for discharge based on its findings and informing them of their eligibility, as reflected by the low percentage of borrowers who have managed to obtain the relief for which they are eligible.  The public should be appalled at the idea that, because a borrower happened to make payments, or involuntarily surrendered a tax refund, including an Earned Income Tax Credit, in service of a debt that is now acknowledged to be the product of illegal fraud, the Department would choose to keep that money.

Second, the Department should immediately implement a moratorium on collection of all Corinthian debt.  As the Department’s report shows, only 12% of those who are in the presumptively eligible category (the “findings” students), have submitted the attestation form that the Department requires before it will consider actually delivering relief.  This is despite the massive outreach efforts the Department has undertaken.  A recent letter from Senator Warren exposes that nearly 80,000 former Corinthian students are currently in some form of debt collection as the direct result of Department actions.  Others, including The Institute for College Access and Success have called for a moratorium on collection.  And last month, the Project asked a federal court to declare that such a moratorium is required under law.  Continued collection on Corinthian borrowers is especially perverse given that the Department has taken a hard stance against returning this money once a borrower actually applies for relief.

Third, the Department needs to implement relief on an automatic basis where the evidence supports widespread fraud, as it clearly does in the case of Corinthian.  The Department has this authority, under existing law and under a fair interpretation of the forward-looking rule it just announced.  Rather than spending effort and resources on Facebook campaigns, and rather than engaging the army of lawyers and contractors required for a case-by-case analysis of the equitable imposition of a statute of limitations, the Department should take action across the board to bring desperately needed relief to borrowers.

Lawsuit Against U.S. Departments of Education & Treasury

A former student of Everest Institute filed a lawsuit yesterday in federal court to challenge the government’s continued collection of defaulted federal student loans from low-income people who borrowed in order to attend a school operated by the disgraced and defunct Corinthian Colleges chain. The Project on Predatory Student Lending, part of the Legal Services Center of Harvard Law School, represents the plaintiff in this lawsuit, Darnell Williams.

Mr. Williams, a resident of Dorchester, Massachusetts, attended a massage therapy program at Everest Institute, formerly located in Chelsea, Massachusetts. The lawsuit alleges that the government has been illegally seizing funds from borrowers who have defaulted on their loans from Corinthian schools. Although the government has broad powers to collect on defaulted federal student loans, it may not seize funds from borrowers when it knows that the defaulted student loan debts are not legally enforceable due to a school’s fraud.

The government has already acknowledged the widespread fraud at Corinthian schools. Speaking earlier this year, Secretary of Education John King Jr. stated that, “[w]hen Americans invest their time, money and effort to gain new skills, they have a right to expect they’ll get an education that leads to a better life for them and their families. Corinthian was more worried about profits than about students’ lives.”

Mr. Williams is not the only Corinthian borrower affected by the government’s refusal to stop seizing money from borrowers it knows were defrauded. Massachusetts Senator Elizabeth Warren released shocking information in a letter to Secretary of Education King this morning that the Department of Education, with the assistance of Treasury, is collecting from nearly 80,000 former Corinthian students, a figure that does not include collections against students who defaulted on loans borrowed to attend Corinthian before July 2010.

In calling attention to the data and the Department’s general inability or unwillingness to grant relief to Corinthian borrowers, Senator Warren stated, “[i]t is unconscionable that instead of helping these borrowers, vast numbers of Corinthian victims are currently being hounded by the Department’s debt collectors — many having their credit slammed, their tax refunds seized, their Social Security and Earned Income Tax Credit (EITC) payments reduced, or their wages garnished — all to pay fraudulent debts that, under federal law and the Department’s own policies, are likely eligible for discharge and thus, invalid.”

Click here to read the complaint.