When a retailer goes bankrupt, little thought is given to the store’s customers, but what happens when a for-profit educator goes bust? Do its customers — the former students — have any right to be involved in the bankruptcy proceedings?
A group of former students who were stranded in September by the sudden closure of all ITT Tech campuses, have filed a lawsuit [PDF] against parent company ITT Education Services in the hopes of providing thousands of their fellow students with a portion of the now-defunct school’s assets.
According to the lawsuit — which features testimonials from 521 former students — ITT Tech “engaged in systematic and sustained activities to conceal” that it had engaged in misleading recruitment practices and other illegal tactics to enroll students.
In all, the suit claims that students were the real creditors of ITT Tech, contributing more than $7.3 billion to the school through federal and private student loans, and are entitled to representation in the bankruptcy proceedings.
“ITT’s revenue came almost entirely from tuition, and the vast majority of that tuition was paid through federal financial aid programs administered by the U.S. Department of Education,” the suit claims.
Because the students make far less than they were promised when attending the school, they are more likely to default on these loan obligations, according to the lawsuit. In fact, the suit claims that default rates on those loans can be as high as 80%.
“Unlike ITT’s obligations, students’ debts cannot be discharged easily in bankruptcy,” the lawsuit states. “ITT students are the true creditors of ITT. They seek recognition as creditors in this bankruptcy, a fair apportionment of the remaining estate, and an adjudication of their claims that will clear the path to loan cancellation in collateral proceedings.”
Students assert in the lawsuit that they were duped by schools administrators into taking out costly student loans in order to attend the college.
“When I first met with the recruiter from ITT he presented me with charts with pay scales of what was stated as starting salaries of entry-level construction managers starting at $80,000 a year,” one student claims. “The recruiter made it sound like a sure thing and had convinced me that enrolling there was a great investment in my future.”
In other cases, students recalled being forced to sign papers or having their signatures forged by the administrators that allowed the school to take out high-inters loans in their name.
“The only financial aid that I applied for was the FAFSA,” one student said. “[ITT] forged my signature on private loans that I’m just learning about with Peaks Private loans. I never received any documentation about the loans that was taken out, nor [was] anything explained to me about the loans.”
“I was told that all my loans were the same and that they were all government loans,” another student recalls. “I did not find out I had private loans until after I had graduated and defaulted on them.”
With the lawsuit, the students are seeking a judgment that declares that ITT committed violations of consumer protection laws, an order prohibiting ITT from collecting on all private student loans administered by the company, and compensatory damages in an undisclosed amount.