ITT Technical Institute had been a for-profit school since 1969 and got closed in 2016. Before the closure, it had 137 campuses, around 35000 students, and 8000 employees. Hence, it is no wonder that such a huge for-profit educator’s closure affected thousands of people.
Though the government and other parties tried to make this process less damaging to students and employees, it was impossible to benefit all. Like several other for-profit institutions, ITT Tech students also had massive debts and a high default rate. ITT Tech even had two private loan programs to provide funds for the students. That is the main reason why lawsuits still continue, and the ITT Tech lawsuit update is announced almost every year.
The controversial loan program left thousands of students struggling with the payments. As the institution declared bankruptcy, all affected stakeholders – creditors, employees, federal regulators, and students tried to get their share from the liquidated assets.
ITT Tech Lawsuits
Though the educational institution closed in 2016, the controversies around ITT Tech started long before. Several years before the closure, the university faced lawsuits due to the failure of its two loan programs – PEAKS and CUSO. The programs aimed to help students pay tuition fees during the financial crisis of 2008. However, these funding sources had high-interest rates, and students were pressured to get loans. Soon, they became ineligible for the student debt repayment, which was the start of chain events that led to the closure.
In this guide, we cover the details of the ITT Tech lawsuit and explain thoroughly how it all started. Next, we will present different ITT Tech lawsuit update news throughout recent years, including the most recent announcement of $300 million worth forgiveness. Lastly, borrowers will get familiar with possible debt relief programs and Biden’s approach to student loans.
Why did ITT Technical Institutes close?
In 2016, ITT Educational Services announced the closure of all ITT Technical Institutes. This organization was the operator of the institutes, and it ‘blamed’ the government for the closure. In fact, many different parties involved in ITT tech issues blamed each other for the sad ending. ITT officials said that the closure happened due to the Education Department’s pressure. Financial analysts also supported this argument by adding that the Education Department required ITT Tech to provide a credit letter worth $247 million. A bank usually gives such a credit letter, and it shows that the organization has the amount in the bank account. In this way, the Education Department guarantees that the students and taxpayers are protected with those funds if the ITT Tech is not available to meet federal aid liabilities.
While the Education Department’s requirement seems reasonable as it attempts to protect large groups of people, this letter was devastating news for ITT Tech. They already had a $124 million worth letter of credit, and the officials could not provide more. In fact, the Education Department’s requirement indicated that the institute could not continue operating. As a result, ITT Tech lost its right to enroll students, access federal aid, pay bonuses, etc. Following, the news influenced the stock prices, and they reached ever-low rates. Therefore, the ITT Tech officials ‘blamed’ the government- Department of Education for the closure. They even said that due to this department’s disregard, thousands of students, alumni, and employees were affected negatively. At that time, ITT Tech employed 8000 people, and it had around 35000 students in 137 campuses.
What was the Response?
On the other hand, the Undersecretary of Education noted that while they understand the negative consequences of closure, it was their responsibility to protect all students and taxpayers. Additionally, the officials tried to make events less-damaging for the students. They contacted all students to inform them about the possible options and created webinars to guide the confused individuals. After the closure, students could transfer the credits to different institutes if they wished to continue education. However, in that case, the students could not apply to the loan forgiveness program, called Closed School Discharge. The officials made sure that students know their options and decide reasonably.
Was ITT Tech Responsible for the Closure?
Although the organization saw the Department of Education as responsible for the closure, there were some opposing ideas. A critic of for-profit colleges said that ITT Tech was responsible for closure because they attracted students to low-quality education to get higher profits. ITT had several opportunities to make things right, but instead, they continued with fraud. In fact, ITT Tech also faced some allegations like deceptive marketing and predatory loans even before the closure.
Besides, the reason behind the Department of Education’s new letter of credit requirement was ITT’s accreditation threat. First, the accreditation council asked the educational institute to prove why it deserves accreditation. As concerns increased about the accreditation, the Education Department asked the ITT Tech to allocate new funds to protect students. They knew that if ITT Tech loses accreditation, thousands of students will be eligible for student loan forgiveness options.
ITT Tech Lawsuit Update by SEC
An ITT Tech lawsuit update news broke in 2018, which informed that the executives agreed to pay in total $300,000 as a penalty. However, they did not admit any wrongdoing. This lawsuit has particular importance because the student loan programs involved are still the main topic of the ITT Tech lawsuit update in 2020.
In 2015, the Securities and Exchange Commission announced that they charged ITT Educational Services- the ITT Technical Institutes operator- due to the fraud. The SEC claimed that the operator and its executives hid information from the investors about poor performance. Their two student loan programs- “PEAKS” and “CUSO” were covering the collapsing private student loans, and they were risky. However, the loans were guaranteed against the risk of loss from loan pools. By 2012, the student loan pool performance was also down, which indicated that it could not guarantee a loan process. It was also alleged that sometimes the officials deliberately made payments on student accounts to keep them from student loan default. When ITT disclosed this information about the huge payments as guarantees, its stock price declined.
PEAKS and CUSO
The ITT started these two student loan programs after the 2008 financial crisis. As for-profit college students had high default rates, banks did not provide credit to them. Instead, ITT made these two loans available to students. However, they were also obliged to convince investors. They informed the investors that they hedge against the default risk by utilizing student loan pools. If a certain percentage of the loan is not paid, the institute will use these funds to pay principal and interest. Yet, the organization, allegedly, did not disclose all loans they made in the balance sheet.
Hence, investors were unaware of how these loan programs perform. In 2011, the ITT paid $8 million as guarantee responsibilities, but they did not inform that more of the payments were still waiting. Finally, in 2014, the organization disclosed that it had a $60 million worth of obligation, the value of publicly traded stocks fell sharply.
ITT Tech Bankruptcy
It might be interesting why there still exists an ITT Tech lawsuit update even four years after its closure. As mentioned before, the ITT institutions closed in 2016. As a result,137 campuses closed, 35000 students, and 8000 employees were negatively affected. At that time, the organization filed for bankruptcy to liquidate the business, which prolonged the resolution process. Every stakeholder, including creditors, state officials, federal regulators, students, and even employees, had claims on the assets. Therefore, it was challenging to solve the case.
Early in 2018, a lawsuit recognized the $1.5 billion worth claim. In this lawsuit, students were against the organization due to the breach of contract and other consumer rights violations. However, this recognition did not mean that the students would benefit immediately. They could only get their share if there were some assets left after meeting the obligation of priorities.
2018 Victory of Students
Though all stakeholders were ‘fighting’ to get their shares from the bankruptcy liquidation of ITT Tech, they were not much successful. Yet, two years after the closure, an ITT Tech lawsuit update was announced, which benefited former students. Finally, in 2018, the judge approved a settlement in favor of the 750000 students. According to the settlement, $600 million worth of debt owed directly to the ITT Technical Institute was forgiven. Besides, cash refunds worth $3 million were agreed upon.
During this lawsuit, it was claimed that the ITT Tech misled students. The officials provided temporary credits to cover any tuition fee remaining after getting federal or personal debt. They assured me that this credit was like a grant which does not require repayment. However, the lenders demanded repayment from students even after the bankruptcy. Yet, again, the benefit of the lawsuit was dependent on the availability of funds.
2020 ITT Tech Lawsuit Update
In 2020, the good news was announced again, which informed that $300 million private student loans, distributed under the PEAKS loan program, were forgiven. It was the result of the lawsuit involving federal regulators, 47 state attorneys general, and ITT. As explained before, PEAKS covered tuition costs when students run out of federal or private loan options.
It was mentioned that many students did not even realize the difficult terms of the loan, and they were pressured to get the loan. The loan program had high-interest rates, and soon students became unable to repay the debt. It was also alleged that ITT Tech knew that the default rate would be high, and they were reckless in distributing such funds.
Details of Order
As a result of the investigations and claims, the court ordered that PEAKS collections be terminated. Besides, the officials were required to contact Consumer Reporting Agencies to request deleting the lines associated with such loans. They were also obliged to contact affected students by mail to inform them about the loan status and credit report changes. In short, this ITT Tech lawsuit update was a great debt relief chance for approximately 35000 students.
Closed School Discharge
The ITT Technical Institutes announced the closure in 2016 in 38 states. They filed Chapter 7 Bankruptcy, which made the students eligible for the discharge process. Students enrolled at the time of closure or withdrew on or after May 6, 2016, were eligible for closed school discharge. This aid program was highly beneficial for debtors because it brought 100% elimination. However, it only covered federal loans- Direct, Federal Family Education, and Perkins loans.
ITT Tech lawsuit update covers private loans owed directly to the ITT Tech while Closed School Discharge only benefits students with federal loans. Yet, only students enrolled at that time or withdrew on the qualifying timeframe are eligible.
Debtors who cannot take advantage of these options should not lose their hopes. Federal loan borrowers can still access Borrowers’ Defense to Repayment, consolidation, or repayment programs. Private debtors can negotiate and settle the terms, refinance the loans, or declare bankruptcy in the worst-case scenario.
Federal Loan Options
The ITT Tech lawsuit update was based on the two student loan programs ITT Tech launched- PEAKS and CUSO. Unfortunately, the benefits only cover the debt directly owed to the ITT Tech Institutes.
Students with federal loans also had access to opportunities to get some relief. Closed school discharge eliminates the debts of students studying while the campus closes. Additionally, Borrowers’ Defense to Repayment protects students who were victims of school frauds and misconduct. However, the events get even more complicated for federal loan borrowers.
So far, the Department of Education mostly ignored the relief for borrowers through Borrowers’ Defense to Repayment. Though thousands of students applied to this program, only a few former students received approval. Even worse, there was a case for a borrower with approval to cancel 0% of the debt.
Why Do You Need to Get Help?
Though student loan forgiveness opportunities exist for ITT Tech students, they benefit only a small portion of the applicants. When ITT Tech closed, 13000 applications were made for federal debt forgiveness. However, only 33 of them got approval in the first two years. Hence, it takes some time and effort to get approval, even if you are a perfect candidate.
When applying through Borrowers’ Defense to Repayment, it is necessary to make claims clear and support them. Debtors are usually inexperienced in such activities, so they tend to ignore powerful arguments and documents supporting the claims. However, Student Loans Resolved experts have years of experience, and they can guide former students to maximize their approval chances.
Why ED Opposes the Relief?
For a long time, Education Secretary Betsy DeVos has been opposing the Borrowers’ Defense to a Repayment program. She thought this program is a “free money” opportunity and changed the debt relief calculation methodology for fair treatment.
It is also understandable why the Education Secretary is worried about this program. Until five years ago, only a few students were using this debt relief option. However, once major for-profit colleges started to collapse, the number of qualifying students skyrocketed. As a result, students were left with huge debts and useless degrees. The secretary at that time mainly forgives the debts and followed a favorable approach under the Obama administration. About 30000 borrowers took advantage of the Borrowers’ Defense to Repayment.
Yet, later, the Education Department started not to process the claims for a long time. There were some lawsuits against the Education Department claiming that the officials deliberately delayed the process or tried to minimize the relief amount. Even when the department is pressured to process the claims, they mostly rejected the applications.
As mentioned before, the methodology for relief calculation was also changed. Though the aim was protecting taxpayers and having fair treatment to student loan problems, the House Education Committee alleged that the methodology is too restrictive. According to their 30-page report, it is almost impossible to get full relief with this calculation method.
What is Expected under Joe Biden’s Administration?
Joe Biden’s plan for education beyond high school aims to make some changes in federal aid programs.
Free Education – ITT Tech Lawsuit Update
Though useful federal aid programs are necessary with the current level of student debt, the problem’s root cause should not be ignored. People take huge loans because they know that getting a degree is essential for employment opportunities. These loans cover the tuition fees and other costs of education. Joe Biden initially aims to reduce the demand for the loan by providing free education. According to Senator Sanders’ proposal, Joe Biden wants to make public colleges and universities tuition-free if the family’s income is less than $125000 yearly.
Income-Based Repayment Program Changes
One of the benefits of Biden’s plan is that if the borrower earns less than $25000 per year, they will not be required to repay the debt. During this period, the interest will not also accrue. Others will make payments equal to 5% of discretionary income. After 20 years of payment, the debt will be forgiven. Additionally, debt forgiven with an income-based plan will not be taxable.
Public Service Loan Forgiveness program exists to aid borrowers working in public service. However, according to Biden’s plan, this program is broken. Biden will aim to create a simplified program in which borrowers will get $10000 relief per service year. The maximum amount of service years will be five.
Monitoring For-Profit Schools
Students in for-profit schools have higher default rates. Some of these schools utilize misleading practices and pressure students to take on more debt. The Biden Administration will demand such educational institutions to prove their value to the Education Department before getting any federal aid. The good news is that Biden will also follow the Obama-Biden’s approach to Borrowers’ Defense to Repayment and forgive students’ debt who were misled by the fraudulent school conduct.
Private Loan Discharge
Biden aims to enact the legislation for discharging private loans through bankruptcy. Besides, Biden’s Administration will take action together with the Consumer Financial Protection Bureau to deal with private lenders that misled the borrowers and do not provide better loan terms if they experience financial difficulties.
The details of all these plans are not clearly defined yet. However, Biden is favorable for Borrowers’ Defense to the Repayment program, which creates a hope that more former ITT Tech students will get debt relief approval.
What is the Borrowers’ Defense to Repayment?
While discussing the ITT Tech Lawsuit update or Biden’s Plan for student loans, we frequently mentioned Borrowers’ Defense to Repayment federal aid program. Hence, you might need to know more about this loan forgiveness option.
Borrowers’ Defense to Repayment program protects students that were misled by educational institutions. It can bring full or partial elimination, as well as refunds to students. Though it is technically possible to get full elimination, as mentioned before, with the new calculation methods, it is almost impossible. However, there still exist hopes for more favorable terms with the help of Biden’s administration.
Borrowers’ Defense is accessible for federal direct loans. Other loan types like Perkins or Family Education loans do not qualify for this debt relief opportunity.
How to Qualify for Borrowers’ Defense?
Borrowers’ Defense is a tool to protect student rights and to stop educational institutions from misrepresentation or other misconduct. Hence, the most important eligibility criterion is proof that the university misled the student. In more details, there are two conditions:
- The school should mislead a borrower on issues like the true cost of education, employment opportunities, education quality, credit transfers, etc.
- A borrower should prove fraudulent activities by supplying related documents or other tools.
Even if the institutions misled you, you would not receive this federal aid if you cannot prove the case. The applicants should clearly explain their negative experiences with the school and put some documents like email communication, false advertisement materials, or transcripts in their applications.
How to Apply?
The application to Borrowers’ Defense is possible via mail or email. One can find the application form and fill it online. It is possible to put a signature digitally. Alternatively, one can print the form, fill and sign it before sending it through the mail. However, the applicants should first create an account on the official platform.
Review Process and Decision Announcement
ITT Tech lawsuit update 2020 does not benefit federal loan borrowers. Such debtors can take advantage of Borrowers’ Defense to a Repayment program. However, the current likelihood of receiving approval can be lower due to the Education Department’s unfavorable approach. Once Biden’s administration starts to implement plans, the chance for approval might increase. Besides, currently, some delays in the review and response process might happen.
After the application is submitted, it takes around a year for the Education Department to review the case. During the review period, the debt collection process stops. In other words, the debt gets a loan forbearance status. However, keep in mind that interest payments will accrue, and in case of rejection, you will be required to pay accumulated interests. Borrowers can also continue making payments if they wish to.
When the decision is made, they notify the applicant by email or mail. In these notifications, it is possible to see the decision and reason behind it. In case of approval, the applicants can find out the relief percentage. Unfortunately, there happened a case when the individual received approval, but the relief amount was $0. Therefore, it is necessary to read the whole notification.
Applicants have a right to apply for the review process if they get rejection. However, it is also claimed that most borrowers do not benefit from a new review case. In all cases, if you want to apply for a new review, you need to send an email or mail to the official address with the subject “Request for Reconsideration.”
When the Department of Education approves an application, it is possible to find the debt relief amount in their notice. Applicants receiving partial relief will be required to repay the rest of the debt. Besides, they will be responsible for the accumulated interest. Successful applicants can also receive a refund. However, there exist some conditions for refunds. Borrowers need to apply in the eligible time frame, and the paid amount should exceed the outstanding balance after the discharge.
Consolidation or Refinancing
Although forgiveness options exist for federal loan borrowers, it is still hard to get approval. Borrowers who cannot benefit from debt relief can decrease payment amounts or receive favorable loan terms. One of the options for such borrowers can be debt consolidation. It is possible to consolidate private or federal loans. In general, consolidation and refinancing help debtors to get a new loan and cover other existing ones. This new loan can decrease the monthly payments and simplify the repayment process.
Income-driven Repayment Plan
Income-based repayment allows student-loan debtors to make payments suitable to their revenues. As a result, they do not face challenges during the debt repayment process. There exist different types of Income-driven repayment plans, including Pay as You Earn, Income-Contingent, or Revised Pay as You Earn programs. They deliver varying conditions. For example, Income-based repayment allocates 10% or 15% of discretionary income for a 10 year payback period. Meanwhile, Income-Contingent plans demand 20% of discretionary income for over 12 years. Once all programs are reviewed, one can choose the most suitable option to pay the debt with peace of mind.
Options for Private Borrowers
If you have loans from private lenders other than ITT Tech, there are a few options for you. Sure, the opportunities available to private debtors are not as perfect as the ones for federal borrowers. However, it is still better than receiving no aid.
One way to get private loan help is through refinancing, which we discussed in the previous section. Refinancing is similar to consolidation, but private organizations deliver it. Besides, borrowers can negotiate with the lenders to ease the loan terms. For example, if the debtor is going through financial difficulty due to a lost job, he/she can inform the lender and ask for a temporary favor. The lender might agree to decrease the payment amount or suspend it for a short time till the debtor gets a new job. However, the lender is not obliged to accept the favor request.
If the borrower approaches the lender with respect and clearly explains the situation, the lender might agree to the request. Plus, the borrower’s default is not desirable for the lender, so they might negotiate.
Lastly, loan bankruptcy is an option, but it is not recommended. There exist many disadvantages of bankruptcy:
- The negative effect of bankruptcy on credit reports will stay as long as 10 years.
- The court decides on bankruptcy, which is very difficult to convince the judge.
- Even if the request is accepted, bankruptcy can be in the form of restructuring.
In this case, the borrower will still be obliged to make payments.
ITT Tech faced claims before, during, and even after the closure. The lawsuits started several years ago, but an ITT Tech lawsuit update appears in the news every year. Most of these lawsuits benefit borrowers with debt directly owed to ITT Tech. Unfortunately, they do not cover all federal and private debtors. However, there are still options for such borrowers. In this guide, we discussed the lawsuits, updates, and debt relief opportunities in detail. Besides, we presented Biden’s administration’s approach to student loans. If you struggle with ITT Tech loans, this guide will help you identify your opportunities. Alternatively, you can contact Student Loans Resolved to get expert help.