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.