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Roughly 208,000 student loan borrowers who attended a now-defunct for-profit college chain will have $3.9 billion in federal student debt discharged, the Department of Education announced Tuesday.
The Department’s announcement, which covers borrowers who attended ITT Technical Institute from January 1, 2005 until it closed in 2016, is the latest effort by the agency to make students who were scammed by their college whole. So far, the agency has announced about $13 billion-worth of federal loan discharges for 1 million borrowers who attended schools that closed abruptly or were found to have misled students in the process of enrolling them.
Years of investigation uncovered that ITT “spun a web of lies to coerce students into enrolling in their programs,” Secretary of Education Miguel Cardona said on a conference call with reporters.
“Students emerged from their time with ITT having made little to no progress on their educational journey and they were saddled with debt that they couldn’t escape, until now,” he said.
The federal government also announced that it would be taking steps towards making taxpayers whole in a separate case where former students are set to have their debts wiped away because their school was accused of misleading them during the enrollment process. The Department notified Cogswell Education, the owner of for-profit college DeVry University, which is still operating, that it owes the government nearly $24 million for debt the agency is in the process of discharging on behalf of the school’s former students.
Latest in a years-long saga
The announcements are the latest in a years-long saga over the fate of students who attended for-profit colleges that have been accused of misleading students. For years, borrowers and advocates have been pushing the Department of Education to cancel debt in large batches for student loan borrowers who attended schools during a period when there is clear evidence of wrongdoing. More recently, advocates and lawmakers have also urged the agency to hold institutions and executives financially liable for that relief.
Rohit Chopra, the director of the Consumer Financial Protection Bureau, said for-profit college chains “peddled the American Dream” just like subprime mortgage lenders who lured borrowers into taking on loans the lenders knew could wind up devastating the borrowers.
“Less discussed was the same subprime-style lending practices that were purported by some of the nation’s largest chains of for-profit colleges,” said Chopra, who served as the CFPB’s student loan ombudsman from 2011 to 2015. “Repeatedly we saw those companies engaged in widespread deception and fraud,” and use “complex loan arrangements that allowed them to harvest profits even as they set up borrowers to fail.”
In the case of ITT, federal agencies and state attorneys general have accused the now-shuttered company of wrongdoing for years. Richard Cordray, the chief operating officer of Federal Student Aid, noted on the call with reporters that the Consumer Financial Protection Bureau filed a lawsuit against ITT in 2014, when he directed the bureau, accusing the school of luring students into high-interest private loans they knew the students wouldn’t be able to repay.
The CFPB and state attorneys general reached settlement agreements with the companies that managed ITT’s private student loan programs resulting in nearly $500 million of discharged private debt for former ITT students. But borrowers kept waiting for relief from their federal debts.
“We reaffirmed today that we will do what it takes to protect students,” from predatory schools, Cordray said. “One way we do that is by sharing information and collaborating closely with our colleagues.”
The collaboration between the Department of Education, the CFPB and state attorneys general turned up evidence that school representatives misled students about their ability to get a job or transfer their credits to another school, the Department said. The findings were based on internal records as well as information from borrowers and ITT managers and recruiters.
Tasha Berkhalter, a former ITT student, shared her first hand experience with these tactics. An army veteran, Berkhalter enrolled at ITT in 2006 hoping to earn a credential that would allow her to work for the FBI.
“I just wanted to give my children a life that I didn’t have and be a productive citizen so I decided to go to school,” she said. She was told by ITT representatives that the GI bill would cover her tuition and that the school would assist with job placement. “They were very convincing, I was very trusting,” she said.
But that turned out not to be the case. Berkhalter wound up taking on about $100,000 in student loans to attend ITT, she said. When she graduated with a bachelor’s of science from ITT, she found out the debt was “all for a degree that no one takes seriously.” Berkhalter said she struggled to repay the debt and has lost homes and cars over the years that she’s coped with it. But thanks to government action over the past year some of her debt has been discharged and she expects the rest to be wiped away soon.
“The cloud has been removed from over my head,” she said. “It’s been a long time coming.”
Department officials already announced last year that they would cancel more than $1 billion in student debt for borrowers who attended ITT. To date, the agency has approved discharges for 130,000 former ITT students worth $1.9 billion officials said Tuesday. Former ITT students covered by Tuesday’s announcement won’t have to apply to have their debt discharged, the government will do it automatically, Department officials said Tuesday.
On the books since the 1990s, but rarely used until recently
Since the 1990s, student loan borrowers have had the right to have their federal debt wiped away in cases where they were misled by their schools, but they rarely took advantage of it for decades. Following the collapse of Corinthian Colleges in 2015 and ITT Tech in 2016, borrowers, organized by activists, submitted borrower defense claims in droves. That clamoring for relief pushed the Obama-era Department of Education to streamline the borrower defense process. But during the Trump administration, cancellation under borrower defense essentially stalled. Under the Biden Administration, officials have taken an aggressive approach to canceling debt for scammed students.
Advocacy groups and former ITT students celebrated Tuesday’s announcement. The Debt Collective, which organized borrowers to submit the defense to repayment applications in 2015 and 2016 called it a “landmark victory.” Eileen Connor, the president of the Project on Predatory Student Lending, which represents ITT students in the school’s bankruptcy, thanked administration officials for canceling the borrowers’ debt.
“Every student who attended ITT was impacted by its fraud and now, because of their resolve and perseverance, they will receive the justice they deserve by having their loans canceled,” Connor said in a statement.
Still, advocates continued calls for more. Libby DeBlasio Webster, senior counsel for Student Defense, an organization that does litigation and advocacy on behalf of student loan borrowers, said in a statement that the group hopes “this is a sign” the administration “plans to approve additional borrower defense claims in several other pending applications where state attorneys general have demonstrated that student borrowers are entitled to relief.”
‘Difficult to get money back from a closed institution’
Student Defense as well as other advocates and lawmakers have pushed the Department of Education to hold executives and institutions liable for the losses to taxpayers when federal student debt is discharged because of schools’ alleged wrongdoing.
Because ITT is in bankruptcy court, it’s difficult for the agency to recoup the billions of dollars in canceled debt. “It’s difficult to get money back from a closed institution,” Cordray said. In these cases, advocates and lawmakers say, the Department should hold executives and owners liable for the relief.
Cordray said that’s something the agency is looking to do instances going forward “where we can.”
“We think it’s really important for individual officials and leaders of these schools to take responsibility for failures of these schools,” he said.
ITT executives have faced some financial repercussions in the wake of the school’s collapse. Kevin Modany, who was the chief executive officer of ITT in the years leading up to its closure, agreed to pay $200,000 as part of a settlement with the Securities and Exchange Commission in 2018 over claims the company misled investors about the impact of two failing student loan programs on the company’s bottom line.
Attorneys representing Modany didn’t immediately respond to a request for comment.
Because DeVry is still operating, the Department likely has a clearer path to try and recoup the funds from discharges related to the school. Earlier this year, the agency announced it would cancel $71.7 million in debt for former DeVry students over claims the school misled students about job placement rates. On Tuesday officials said they notified the school’s owner, Cogswell Education, that they were seeking to recoup about one-third of that. A Department official told reporters on the call that the $24 million they agency is seeking from DeVry is its “initial request.”
DeVry has received the Department’s notice and is reviewing it, Hessy Fernandez, a spokesperson for the school, wrote in an email.
“We continue to believe the Department mischaracterizes DeVry’s calculation and disclosure of graduate outcomes in certain advertising, and we do not agree with the conclusions they have reached,” Fernandez wrote.
Targeted debt relief
The announcements are part of a targeted approach to debt relief pursued by the Biden-era Department of Education. Over the past couple of years the Department has canceled $32 billion worth of debt for borrowers who were already eligible for relief, including those with severe disabilities and those who were scammed by their schools.
Tuesday’s announcement comes as borrowers and advocates are waiting to hear about the Biden Administration’s approach to broader student debt forgiveness. The White House is reportedly considering canceling up to $10,000 in debt per borrower for those earning up to a certain income threshold. Lawmakers, including Sen. Elizabeth Warren, a Democrat of Massachusetts and Majority Leader Chuck Schumer, have called on the White House to cancel up to $50,000 in student debt. Some advocates have gone even further calling for the administration to completely wipe out borrowers’ balances.
Borrowers are also waiting to hear whether the Biden Administration will extend the freeze on student loan payments, interest and collections, which is scheduled to expire on August 31. More than 100 Democratic lawmakers wrote to President Joe Biden and Secretary of Education Miguel Cardona in July, urging the administration to keep the freeze in place.
