Forging a path to debt cancellation for former ITT Tech students

A Q&A with directors of HLS Project on Predatory Student Lending

Project on Predatory Student Lending Director of Litigation Eileen Connor, left, and Director Toby Merrill, are representing a group of former ITT Tech students.

Credit: Shiho Fukada Project on Predatory Student Lending Director of Litigation Eileen Connor, left, and Director Toby Merrill, are representing a group of former ITT Tech students in a class action lawsuit.

On Jan. 3, the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School filed a 7.3 billion dollar class action lawsuit in the bankruptcy proceedings of ITT Tech, one of the country’s largest for-profit college chains, on behalf of a proposed class of hundreds of thousands of former ITT Tech students in all 37 states in which the now defunct college had operated.

The lawsuit has received major media attention—in the New York Times the Huffington Post and the Washington Post. We spoke to Toby Merrill ’11, the director of the Project on Predatory Student Lending—which she started in 2012 to fight for borrowers who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges—and Eileen Connor, its director of litigation, about the background and significance of the suit and about the HLS project’s involvement.

Why did the HLS Project on Predatory Student Lending get involved with this case?

CONNOR: We didn’t want one of the biggest and most predatory for-profit colleges to disappear through the liquidation process without students getting debt relief. An inaccurate narrative developed around this particular bankruptcy: ITT was a good business that was financially distressed due to regulatory overreach by the Department of Education. In fact, this business cratered because it failed and defrauded students. While in operation, ITT used aggressive tactics to silence whistleblowers and students about its illegal practices. Yet a trove of testimony had been submitted to the Department of Education by former ITT students—over 2,000. We wanted to bring these stories, and the work of student debt resisters like Debt Collective, into the public dialogue about ITT and for-profit colleges more generally.

What are the former students from ITT Tech asking for?

This business cratered because it failed and defrauded students. While in operation, ITT used aggressive tactics to silence whistleblowers and students about its illegal practices.

Eileen Connor, Project on Predatory Student Lending's director of litigation

MERRILL: Students are seeking to establish the liability of ITT for consumer protection act and contract violations against a class of students who attended ITT over the past ten years. If successful, this Complaint will establish ITT students as creditors of the ITT bankruptcy estate. The students are also asking for a legal finding from the bankruptcy court that ITT engaged in widespread consumer protection violations against students. This finding could create a path to debt cancellation for students’ federal student loans. Under the terms of those loans, borrowers may assert state law violations including consumer protection act violations and contract violations by the school as a defense against repayment of their federal student loans. Students also seek an injunction against the continued collection of certain other debts, including debts allegedly owed to ITT and to private lenders who are functionally alter-egos of ITT.

Why is this suit significant?

CONNOR: ITT generated over 7 billion dollars in student loan debt over the past decade, and yet its graduates earn the same or less than workers with only a high school diploma. We need to reckon with this debt and recommit to the kind of oversight that will stop bad actors from accessing government loan programs.

How does this situation compare to what happened after the for-profit Corinthian Colleges closed its doors? Did students holding loans get any debt relief?

MERRILL: Less than 4 percent of students who were defrauded by Corinthian have gotten relief on their federal student loans, even though it has been more than a year since Corinthian filed for bankruptcy and the Department of Education promised debt relief and declared a sub-group of Corinthian students presumptively eligible for that relief. The situation is worse for ITT students—none of them have gotten any debt relief from the Department of Education yet, and the department has not acknowledged that ITT has done anything wrong or that any students will be eligible for debt relief. This despite suits by several state, investigations by more than a dozen more, and suits by the CFPB [The Consumer Financial Protection Bureau] and SEC.

What do you think the next steps will be for the ITT Tech suit and how will your project be involved?

MERRILL: We have asked the bankruptcy judge to recognize the former students as a class of claimants, so that their claims in the bankruptcy case would be considered as a group and all students would be represented. So the first step will probably be an adjudication of that motion. We will continue to represent former students as they litigate the adversary proceeding against ITT’s estate.

How does this case fit into the kind of problems the project on Predatory Student Lending was formed to address?

MERRILL:The project was formed to help low-income student loan borrowers who were ripped off by for-profit colleges, and ITT was one of the country’s largest for-profit chains. Over the past decade alone, ITT took in over $11 billion in revenue, about 75 percent of which came from federal student aid. Former students of ITT experienced extensive, widespread, and systematic deceit. ITT relentlessly pitched itself to students as a sound investment with a healthy return in the form of guaranteed or near-guaranteed entry-level employment in a lifelong career. In reality, ITT deliberately and severely underinvested in resources needed to deliver on these promises, leaving students with an expensive but valueless credential. So this case fits squarely within the project’s mission.

 


Over the past decade alone, ITT took in over $11 billion in revenue, about 75 percent of which came from federal student aid. Former students of ITT experienced extensive, widespread, and systematic deceit.

Project on Predatory Student Lending Director Toby Merrill '11

What is the role of law school clinics in bringing such significant claims?

MERRILL: The clinics here at Harvard Law School and at other law schools around the country are doing incredible, high-impact work that changes lives and changes law around the country and around the world. Law school clinic cases have led states to overhaul their education funding systems, challenged unfair and illegal immigration practices, and helped expose and end the unfair and deceptive practices underlying the sub-prime mortgage bubble. This claim is even bigger than the $7.3 billion dollars listed in the proof of claim filing. That number leaves out the millions of dollars of interest that have accrued on the loans, and other harm caused by the school.

CONNOR: We are fortunate that our clinical setting allows us to bring cases on behalf of clients that otherwise would not be served. Especially in the area of student lending, the economics are not there to incentivize private lawyers to represent defrauded students, and in fact most of the private bar would be prevented from doing so by conflicts of interest. Like other clinics at Harvard Law School, we are providing a counterbalance, and involving students in high impact work.

How can HLS students get involved in the project’s work?

MERRILL: As part of the predatory lending clinic at the WilmerHale Legal Services Center of HLS, the project enrolls clinical students every semester. Our clinical students work on our major litigation and our individual client representation. Some of our students stay in the clinic after their initial semester, continuing work on their cases throughout their time at the law school. Our students enjoy getting to work with clients and learning to use the law to combat structural economic inequality.


Other Coverage

Student Victims Seek to Become Creditors in ITT Bankruptcy. New York Times, Jan. 5, 2017

Former Students Fight for a Stake in ITT Educational Services Bankruptcy. Washington Post, Jan. 3, 2017

Former ITT Students Clamor for a Seat at the Table in Company’s Bankruptcy. MarketWatch, Jan. 3, 2017

New Student Lawsuit Details ITT Tech Scam, Huffington Post, Jan. 3, 2017

Former ITT Tech Students Sue To Be Included In Bankruptcy Proceedings. Consumerist, Jan. 3, 2017