ITT Trustee Sues Ed Department, Lenders to Help Pay $1.5B in Claims

Education Dive

Dive Brief

  • A trustee responsible for resolving the bankruptcy of ITT Educational Services is suing the federal government and the financial institutions that backed a loan program connected to the for-profit college, according to The Wall Street Journal. She is seeking funds to pay for about $1.5 billion in student, teacher and vendor claims against ITT.
  • Deborah Caruso is suing the Education Department and several financial backers that supported ITT through loans she says took advantage of low-income students and ignored ITT’s troubles. Prior to its closure, the Education Department required ITT to put forth $94 million in assurances, which Caruso is trying to reclaim from a regulator.
  • ITT closed its 100-plus locations in September 2016 with around 8,000 students still enrolled. For years prior to the closure, ITT faced questions from regulators about its marketing tactics and private loans that Caruso said gave students access to funds regardless of their ability to repay them.

Dive insight:

For-profit colleges in recent years have been the subject of controversy — at first drawing criticism and stricter regulations from the Obama administration for alleged unfair marketing and loan practices and, at times, the poor quality of the instruction.

More recently, the Trump administration and Education Department Secretary Betsy DeVos have moved to loosen regulations on the industry, which members said was struggling under the President Barack Obama’s policies and facing slumping enrollment and competition online from traditional nonprofit colleges and private corporations.

ITT and Corinthian College, another for-profit, both failed after the Obama administration clamped down on them based on allegations that they misrepresented job-placement data and used high-pressure recruiting techniques. The Education Department also acted to make it easier for defrauded students to get their money back, a ruling the Education Department under DeVos has moved to reverse.

More recently, two ITT executives who were scheduled to go on trial in July for hiding the company’s poor financial situation, settled with the federal Securities and Exchange Commission and agreed to pay $100,000 and $200,000 in fines and steer clear of positions as officers or directors of publicly traded companies for five years.

The California attorney general in August filed a lawsuit against online for-profit Ashford University based on practices similar to ITT’s and those of several other for-profit colleges. Ashford is also being challenged by the Department of Veterans Affairs over its eligibility to obtain GI Bill funds.

Some are concerned that defrauded students won’t get their due. Preliminary data reviewed by The Associated Press found that 1,000 of the 16,000 fraud claims approved so far by the Education Department under DeVos have been granted full forgiveness. Partial relief accounts for roughly 31% of approved cases so far and covers about 30% of a student’s outstanding loan.