It seems only right that victims of predatory for-profit education companies should have their student loans forgiven. After all, in addition to being left with mountains of debt, former students have worthless degrees from schools that no longer exist, such as those once operated by the defunct Corinthian Colleges or ITT Educational Services.
Because taxpayers backed most of these loans, however, the Department of Education has been loath to forgive them. So it was gratifying to see five former ITT students take matters into their own hands this week by petitioning a federal bankruptcy court to consider loan forgiveness as part of the company’s liquidation.
ITT filed for bankruptcy last year after the Education Department cut off the company’s access to federal student aid. At the time, the company operated 137 campuses in 39 states, providing career-oriented programs to 43,000 students under the names ITT Technical Institute and Daniel Webster College.
The company was hugely successful for years, deriving most of its revenues from federal student aid. Over the past 10 years, ITT students took on over $7 billion in debt; roughly $1 billion were private loans. Federal regulators let ITT schools keep operating, even though they were well aware of the company’s dubious practices. Since 2014, for example, ITT had been under heightened scrutiny by the Education Department, and state regulators had accused it of misleading students about the quality of its programs and their job potential upon graduation. The Consumer Financial Protection Bureau filed a lawsuit against ITT almost three years ago, accusing the chain of predatory student lending.
But even this evidence of widespread impropriety at ITT hasn’t helped former students discharge their debts. So on Jan. 3, lawyers at the Project on Predatory Student Lending at Harvard Law School filed to intervene in ITT’s liquidation, which is currently being overseen by James M. Carr, a federal bankruptcy judge in the Southern District of Indiana.
The five former ITT students involved in the suit are seeking to establish themselves and other former ITT students as creditors in the company’s bankruptcy. Typically a company’s creditors are people or entities to whom it owes money, and they battle over any assets the company might have after it fails.
Abby Shafroth, a staff lawyer at the National Consumer Law Center, a nonprofit organization in Boston and Washington, applauded the former students’ filing in the liquidation. “It’s a creative approach to putting student loan borrowers at the table and making sure it’s not just the banks and some regulatory agencies fighting over the assets,” she said in an interview. “Think about the role and interests of the students, how they contributed to the creation of assets at ITT and what claim they should have to them.” By