*UPDATE: On January 24, the Court approved the settlement described in this post. For information on how to submit a comment on the settlement to the Court, go here.
Why did ITT Tech Declare Bankruptcy?
ITT advertised itself as a quality school offering degrees that would change people’s lives. It lied. In reality, company executives and shareholders (with help from federal officials from both parties) profited from people’s desire for a job and a better life. ITT’s parent company filed bankruptcy in September 2016 after ITT shut down all of its campuses because the Department of Education cut off funding of federal loans for students. Prior to filing for bankruptcy, several lawsuits were filed by state and federal authorities against ITT, including by the Consumer Financial Protection Bureau. Former ITT students had also launched a debt strike demanding debt relief from the Department of Education. PLEASE NOTE: This is not a class action lawsuit. It is a bankruptcy proceeding.
What is the Latest News on the Bankruptcy?
On January 4, the Trustee (a court appointee responsible for administering the ITT bankruptcy estate, selling the property of ITT, finding all available assets of ITT and determining how much and which creditors get paid on their claims) filed a motion asking the court to preliminarily approve a proposed settlement agreement between the student class and the Trustee. The motion is scheduled to be heard by the court on January 24.
What Happens if the Settlement Agreement is Preliminarily Approved by the Court?
If the proposed settlement agreement is preliminarily approved, student class members will have the chance to review and comment on/object to the settlement agreement, as well as opt-out of participating. All former ITT students are part of the class. It does not matter if you filed a proof of claim with the court or not. You are part of the creditor class if you attended ITT Tech.
If the Judge Agrees to the Proposal to Make Former Students Creditors, What Does That Mean for Former Students Themselves?
If approved, the settlement would cancel $600 million in “temporary credits” owed to the school itself. These are debts that were owed directly to ITT and do not include federal or private loans. Former students who have paid on those accounts, since the start of the bankruptcy in September 2016, will get some of their money back.
If the Judge Agrees to the Proposal, Does that Mean My Private and Federal Loans will be Cancelled?
No. Right now, the Trustee can only stop collection on and cancel debts owed directly to ITT Currently, the settlement agreement does not cancel federal or private loan. Unfortunately, a victory in bankruptcy will have no immediate bearing on any private or federal student loans.
What Money Might be Available to Former Students?
At the moment we don’t know. The settlement, if approved, would grant the student class, an unsecured creditor, the right to a $1.5 billion claim. In a bankruptcy, it is the job of the Trustee to try to determine how much money is available to distribute to the creditors of the bankrupt company. Creditors are people who are owed money by the company and are required to file a proof of claim to let the Trustee know what they believe they are owed. Once the Trustee reviews all proofs of claim, she makes a determination on whether to allow or object to a creditor’s claim. Along with other unsecured creditors, the student class (which includes all former ITT students) must wait to see if and how much money will be left in the bankruptcy “pot” to distribute on the student class claim.
What If There is Money Left in the Estate?
If at the end of the bankruptcy there is money remaining to pay unsecured creditors, the student class will receive a proportional share based on the size of the allowed claim. Any amount distributed to the student class will be divided among the entire student class, and the distribution must be approved by the court.
What Will Happen to Money that is Available?
It is possible that what is available for distribution on the student’s claim will not be enough to distribute to individual class members. If this happens, the attorneys, class representatives, and Debt Collective organizers will decide together what to do with those funds, and present their plan to the court for the judge’s approval.
What Can Still be Done About Borrowers’ Private and Federal Student Loans?
This case was an important early step in establishing in court that ITT students were lied to and defrauded. A victory in bankruptcy court could be helpful in invaliding other ITT-related debts and the lawyers representing the student class are exploring every option on how to get all ITT-related debt canceled.
Is This a Victory for Borrowers?
Yes. This would only be the second time (after a similar case with Corinthian College) that former students have been granted rights as creditors in the bankruptcy of a for-profit college. This case sets an important precedent: for-profit colleges will now know that if they lie to students, they will be sued and may end up owing borrowers money.
I Hoped That a Win in the ITT Bankruptcy Case Would Help Me Get My Loans Cancelled. Now I’m Disappointed.Any former student of a for-profit college has every right to feel angry and disappointed. Borrowers have been defrauded for years by various schools, a fraud that Democrats in Congress allowed to happen and that some even encouraged. It’s important to keep in mind, though, that a few years ago no one would have believed that thousands of Corinthian students would have their federal loans cancelled, that two major for-profit college chains would go down in flames as a result of students’ collective action, or that borrowers would have their rights as creditors acknowledged in a court of law. We are making progress. They key is continuing to work together with former students from all for-profit schools to demand federal and private loan relief, the closure of all scam colleges, and free public higher education for all.
Will Borrowers Be Given a Chance to Comment on the Proposed Settlement?Yes. After the judge approves the settlement (a decision that is expected this month), former students will be given a chance to comment on it. We will post information on this page.