Posted December 14, 2016 by Thomas Burns
ITT Educational Services Inc. recently began liquidation proceedings in bankruptcy after closing 136 technical schools, leaving over 35,000 students stranded in one of the largest college shutdowns in U.S. history.
The for-profit college, operating campuses in 38 states, said it was forced to close its doors after the U.S. Education Department demanded a steep increase in the security the company would have to post to guarantee federal student aid. More than 8,000 employees were affected by the shutdown.
Students who were enrolled at ITT’s technical schools or who had withdrawn in the previous 120 days have two options: 1. Those who don’t transfer their credits can apply to have their federal student loans discharged under a government program, or 2. Those who complete “comparable” studies elsewhere generally wouldn’t have their loans discharged.
If every student files for a closed-school loan discharge, the payout could be as high as $478.8 million, according to the Education Department. ITT has put up $94.4 million to defray taxpayer liabilities.
Since August 2014, ITT had been under financial and operational scrutiny by the Obama administration, which has been cracking down on the for-profit college business. The agency expanded its oversight in June, citing “significant concerns about ITT’s administrative capacity, organizational integrity, financial viability and ability to serve students.”
The U.S. Securities and Exchange Commission brought fraud claims against ITT and two executives in 2015 for allegedly concealing major losses in two student loan programs. That lawsuit is still pending in Indianapolis federal court.
The Consumer Financial Protection Bureau sued the company in 2014, accusing it of overstating students’ job prospects and potential salaries and then pushing them into high-cost private loans that were likely to end in default. That case is pending.
ITT listed liabilities of $100 million to $500 million in its Chapter 7 filing. Chapter 7 is the section of the U.S. Bankruptcy Code that covers liquidation proceedings under the guidance of a trustee.