ITT Bankruptcy – Student Intervention

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.

The Project on Predatory Student Lending also wrote to members of Congress with testimony of constituents who are former ITT students, asking members to push for loan forgiveness for former ITT students. To view the letters, click here.

Information for Former ITT Tech Students

Background on ITT Tech

ITT Tech was one of the country’s largest for-profit college chains. Over the past decade alone, it took in over $11 billion in revenue, 98% of which came in the form of tuition, 76% of which came from federal student aid. Originally part of the conglomerate ITT, it spun off as its own publicly traded entity in 1999, headquartered in Carmel, Indiana.

Over the course of the next two decades, it grew at incredible rates, and came under increasing scrutiny for its recruitment practices. ITT was featured prominently in the so-called Harkin Report of 2010, which detailed consumer fraud and misuse of federal funds at multiple for-profit colleges around the country. By the time it declared bankruptcy earlier this year, it had been subject to lawsuits from the CFPB, the SEC, and the Massachusetts and New Mexico Attorneys General, along with investigations by a coalition of state attorneys general and multiple whistleblower lawsuits.

The precipitating event that caused ITT to file for bankruptcy was the Department of Education’s decision in September of this year to cease providing federal student aid (Title IV) funding to students who enrolled in ITT. Since almost all of ITT’s revenue came from Title IV funding, it declared bankruptcy weeks later.

Despite widespread reports of illegal behavior, none of ITT’s principals, including longtime President and CEO Kevin Modany and Vice President and CFO Daniel Fitzpatrick, have been held liable for their roles.

Background on Student Intervention in ITT Bankruptcy

Why?

Since ITT declared bankruptcy, its creditors—largely the Wall Street firms that lent ITT money to prop up its operations and colluded to create non-arms-length private student loan programs for ITT students with usurious interest rates—have been fighting over the remainder of its estate.  On the other hand, as recognized by the Wall Street Journal, “uncollected student debts are one of ITT’s major assets.”

The multitude of investigations and lawsuits by regulators of ITT, along with the over 2000 students who have submitted claims for loan cancellation to the Department of Education, point to the fact that students have legitimate claims against ITT and, at a minimum, should not remain obligated on their ITT-related student loans.

To date, the Department of Education has not taken any action on student claims.  Nor have students had a voice in the bankruptcy proceeding. The bankruptcy court has halted pending litigation against ITT by the CFPB and state Attorneys General.  The allegations and evidence related to these proceedings strongly support students’ claims, but there is a risk that ITT will be liquidated before this evidence can have a proper airing.

The essence of the students’ claims is set forth in the preliminary statement to the Adversary Proceeding Complaint:

Plaintiffs bring this adversary proceeding on behalf of a putative class of former ITT students. The students assert claims against Debtor ITT, its affiliates, and alter egos, based on consumer protection violations and breach of contract. Simultaneously with this adversary complaint, Plaintiffs have filed a class-wide Proof of Claim and a Motion for Class Treatment at the Claim Filing Stage.

 

This pleading is supported by testimony of thousands of former ITT students, describing extensive, widespread, and systematic deceit. ITT perpetrated these illegal actions pursuant to corporate policies and imperatives directed at churning students through a costly sham. ITT relentlessly pitched itself to students as a sound investment with a healthy return in the form of guaranteed or near-guaranteed entry-level employment in a lifelong career. In reality, ITT deliberately and severely underinvested in resources needed to deliver on these promises, leaving students with an expensive but valueless credential. Former ITT students have an easier time obtaining employment when they remove ITT from their resumes entirely.

 

ITT engaged in systemic and sustained activities to conceal the nature of its sham. It silenced whistleblowers and threatened students. It also falsely reported job placement statistics to its accreditor, and invented complicated ploys to achieve the appearance of regulatory compliance, all while students faltered.

 

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.

 

ITT students are the true creditors of ITT. They seek recognition as creditors in this bankruptcy, a fair apportionment of the remaining estate, and an adjudication of their claims that will clear the path to loan cancellation in collateral proceedings.

Who?

The Plaintiffs in this case are former students of ITT Tech.

  • Jorge Villalba attended ITT in California and completed a bachelor’s degree in digital entertainment and game design.
  • James Eric Brewer attended ITT in Indiana and completed an associate degree program in computer network systems.
  • Joshua Cahill attended ITT in Nebraska and completed a bachelor’s degree in information systems cyber security.
  • Juan Hincapie attended ITT in Massachusetts and completed a bachelor’s degree in information systems security.
  • Cheryl House attended ITT in New Mexico and completed a bachelor’s degree in criminal justice.

The proposed class includes students who attended ITT between at least 2006 through its closure in 2016.  In 2006, ITT’s total student enrollment was approximately 45,000.  Enrollment peaked in 2011 at over 89,000 students, and fell to approximately 35-40,000 at the time of its closure. The evidence strongly suggests that ITT’s systematic illegal behavior infected its interactions with all students over this time period. Further evidentiary and legal developments may impact the size and scope of the class.

Legal Filings and Explanations

Adversary Complaint, filed January 3

Students have filed a Complaint against ITT. In bankruptcy, this is known as an Adversary Proceeding.  The bankruptcy judge is authorized to adjudicate, within the bankruptcy, legal claims of creditors against the debtor (ITT), and to issue legal and factual findings. This Complaint seeks to establish the liability of ITT for consumer protection act and contract violations against a class of students who attended ITT over the past ten years (the size of the proposed class).  If successful, this Complaint will establish ITT students as creditors of the ITT bankruptcy estate. The students are also asking for a legal finding from the bankruptcy court that ITT engaged in widespread consumer protection violations against students. This finding could create a path to debt cancellation for students’ federal student loans. Under the terms of those loans, borrowers may assert state law violations including consumer protection act violations and contract violations by the school as a defense against repayment of their federal student loans.  Students also seek an injunction against the continued collection of certain ITT student loans, including debts allegedly owed to ITT and to private lenders who are functionally alter-egos of ITT.

In addition to the declaration presenting student testimony (see below), two additional sets of declarations and exhibits were filed along with the Complaint. One presents documentation of some of ITT’s most egregious recruiting and financial aid practices and trainings, as well as its extraordinary cost. The other presents sworn testimony (affidavits) from a number of former high-level ITT employees and others knowledgeable about its practices.

Proof of Claim, filed January 3

Plaintiffs have filed a Proof of Claim.  This is an assertion that Plaintiffs, and the proposed class they seek to represent, are unsecured creditors of ITT with unliquidated claims against the bankruptcy estate.  The validity and amount of their claim will most likely be resolved in the Adversary Proceeding.

Motion for Class Treatment, filed January 3

Along with their Proof of Claim, Plaintiffs, on behalf of themselves and other former ITT students, have filed a Motion to be treated as a class during the “claim-filing” stage of the bankruptcy proceeding.  The date for creditors to file claims in the bankruptcy proceeding, known as the “bar date,” was January 30, 2017.  This date will almost certainly pass before the Adversary Proceeding is resolved and a class is certified by the bankruptcy court in that proceeding.  To preserve the rights of students, many of whom will not be aware of the deadline for filing claims, the Students have asked for their claim to be treated as asserted on behalf of all ITT students.

ITT Student Testimony

The student testimony was collected from ITT Tech students via the Debt Collective’s online tool for creating and submitting Defense to Repayment applications.  This web-based application launched in March of 2015.  To date, over 2000 students have used it to present claims to the Department of Education about ITT’s fraud.  The exhibits to the bankruptcy filing are drawn from testimony submitted through the Defense to Repayment application as of November 1, 2016. The testimony is organized into 29 exhibits demonstrating common student claims.

Exhibit 1: ITT degree operating as a disadvantage in the job market (521 statements)
Exhibit 2: ITT inflating job placement statistics and expected earnings (362 statements)
Exhibit 3: ITT misrepresenting its job placement services (162 statements)
Exhibit 4: ITT guaranteed job placement (90 statements)
Exhibit 5: ITT misrepresenting the certifications needed for jobs and whether ITT would prepare students for those certifications (224 statements)
Exhibit 6: ITT misrepresenting the quality of their instructors, training, curriculum, or facilities (326 statements)
Exhibit 7: ITT falsifying student attendance and grades to keep financial aid flowing (134 statements)
Exhibit 8: ITT concealing illegal behavior to students and regulators (71 statements)
Exhibit 9: ITT engaging in bait-and-switch tactics (enrolling students in different programs, in online courses rather than in-person instruction) (37 statements)
Exhibit 10: ITT misrepresenting that credits would transfer (670 statements)
Exhibit 11: ITT misrepresenting total cost of program (310 statements)
Exhibit 12: ITT misrepresenting nature and terms of “temporary credit” (which were actually private loans issued by a company ITT controlled) (82 statements)
Exhibit 13: ITT obfuscating the distinction between loans and grants, private and public loans (499 statements)
Exhibit 14: ITT taking out unnecessarily high number of loans, apparently to take advantage of fees (60 statements)
Exhibit 15: ITT downplaying debt burden (142 statements)
Exhibit 16: ITT failing to disburse grant money to students (42 statements)
Exhibit 17: ITT unilaterally changing the costs or adding fees (54 statements)
Exhibit 18: ITT engaging in pressure tactics to prevent students from asking too many questions (381 statements)
Exhibit 19: ITT signing documents on behalf of students or parents without their consent (69 statements)
Exhibit 20: ITT lost or misused aid meant for veterans (45 statements)
Exhibit 21: Descriptions of ruined credit ratings (166 statements)
Exhibit 22: Descriptions of being harassed by debt collectors (104 statements)
Exhibit 23: Descriptions of involuntary collection through garnishment (88 statements)
Exhibit 24: Descriptions of impact of debt on mental and physical health (223 statements)
Exhibit 25: Descriptions of ITT ruining people’s lives (62 statements)
Exhibit 26: Descriptions of impact on family members (252 statements)
Exhibit 27: Description of how ITT prevented other opportunities (473 statements)
Exhibit 28: Description of being homeless due to too much debt (18 statements)
Exhibit 29: Description of shame and embarrassment (52 statements)

The Project on Predatory Student Lending

The Project on Predatory Student Lending is part of the Wilmer Hale Legal Services Center at Harvard Law School. The Project fights for low-income borrowers who have debt from for-profit colleges. We represent students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigation, we have represented our clients by advocating for policy reforms to increase accountability in the for-profit sector.

For more information about the Project, its staff, and its work, please click here.

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