Metro

Bankruptcy court settlement could bring relief to some ITT students

An ITT Technical Institute building in Vista, California, Sept. 6, 2016. The chain of for-profit colleges has announced it is closing, putting an end to an operation that has been accused of fraud and abuse. (Sandy Huffaker/The New York Times)
Sandy Huffaker/The New York Times
An ITT Technical Institute building in Vista, Calif., in 2016.

Thousands of students nationwide who attended the now-defunct ITT Technical Institute would have nearly $600 million in loans canceled under a proposed court settlement, a significant win for consumers in Massachusetts and elsewhere who have long claimed that the for-profit chain defrauded them out of money and an education.

The settlement, which must be approved later this month by an Indiana federal bankruptcy court judge, also acknowledges that students who attended the college between 2006 and 2016 have a $1.5 billion claim against ITT. That means if any money is left over from the school’s assets after its bankruptcy, students could receive a share. Students who continued to pay their loans to ITT, even after the bankruptcy, will also get almost all of their $3 million back.

The settlement is “a victory for former students who were defrauded by ITT,” according to a letter sent to former ITT students by Harvard University’s Project on Predatory Student Lending, which represented consumers in the bankruptcy case. “However, we know that the student class still faces billions of dollars of federal and private student loans from ITT, and we will continue fight for all ITT-related debt to be canceled.”

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Officials with the predatory lending project declined to comment since the judge has yet to sign off on the terms of the agreement.

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The trustee in the ITT bankruptcy also declined to comment. However, in documents filed in federal court on Wednesday, trustee Deborah Caruso described the settlement as, “fair, equitable . . . and well within the range of reasonableness.”

Since ITT abruptly shut down its nearly 140 campuses nationwide and declared bankruptcy in the fall of 2016, students have been seeking financial relief. In Massachusetts, more than 560 students, many of them low-income or veterans, attended ITT campuses in Norwood and Wilmington when the school closed. Across the country, ITT had an estimated 35,000 students enrolled in classes.

Last January, a group of students led by the Harvard project, filed a lawsuit claiming that they had a right to ITT’s remaining assets, like any other creditor of the bankrupt institution. They claimed that ITT employed aggressive tactics to recruit them and then deceived or misled them on multiple fronts, including about the cost of attendance, the school’s accreditation status, the experience of instructors, and the likelihood of job placement and salaries they would earn after graduation.

On social media, where former ITT students have shared their challenges and struggles with student loans, news of the settlement was greeted with relief.

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“This is an amazing start,” said one student on a Facebook page.

“Progress,” another student wrote.

But many also acknowledged the settlement is still limited.

The nearly $600 million in debt cancellation only affects loans made directly to students by ITT and still held by the school. Those loans tended to be smaller amounts, usually a few thousand dollars, and were meant to close any gaps in funding, between what students could pay out of pocket for tuition and fees and what was covered by their much larger federal loans.

ITT also sold millions of dollars in its private loans to an organization formed by seven credit unions, including Workers Credit Union in Fitchburg, that are not part of the settlement.

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“It is at least admitting they owe us,” said Alyse Zachary, 33, from Florida who attended ITT from 2008 to 2010.

Zachary said she was already attending ITT classes when the school told her she needed to take out a $14,000 private loan to continue. She still has the debt, and it has affected her credit and prevented her from getting jobs at a bank and for the federal government.

Many students who attended ITT and other for-profit colleges that closed or that state and federal regulators found had committed fraud and misled students are still also waiting for relief from their federal student loans.

Consumer advocates and some lawmakers have criticized the US Department of Education under the Trump administration for moving too slowly in providing student loan forgiveness to defrauded borrowers who attended for-profits schools.

A July 2017 government report found that although the Trump administration had received 25,991 claims for loan discharges, it had made decisions on only a handful of them.

US Secretary of Education Betsy DeVos is also considering higher standards for borrowers to qualify for federal student loan relief. Under the draft rules, students would have to prove with “clear and convincing” evidence that the school intentionally deceived them.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com.