Understanding the ITT Student Claim Settlement Process

The closure of ITT Technical Institute and Daniel Webster College in September 2016 left many students with significant questions about their student loans and potential recourse. This article explains the ITT student claim settlement process, including who is affected, what the settlement entails, and how students can navigate the process.

Who is Affected?

The settlement primarily benefits individuals who attended ITT Technical Institute between January 1, 2006, and September 16, 2016, or Daniel Webster College between January 1, 2009, and September 16, 2016. These institutions, both for-profit colleges run by the same company, faced numerous allegations of fraud and misconduct, leading to legal action by former students. In 2017, former students filed a class action lawsuit to assert their claims in these proceedings.

Key Components of the Settlement

The settlement addresses several types of debts and provides different avenues for relief.

Cancellation of Debts Owed Directly to ITT

A significant part of the settlement involves the cancellation of approximately $600 million in debts that were directly owed to ITT, often referred to as "Temporary Credits." These credits were issued by ITT to cover tuition costs that were not covered by federal or private student loans. The trustee can only cancel debts owed directly to ITT.

Return of Payments Made on Temporary Credits

The settlement also includes the return of approximately $3 million to students who made payments on these "Temporary Credits" since ITT declared bankruptcy in September 2016. Now that the proposed settlement was preliminarily approved by the court, the trustee will begin working on getting the money back to students.

Understanding Temporary Credits

ITT issued Temporary Credits to students to pay tuition not covered by federal and private student loans. However, it's important to note that many of these Temporary Credits were later replaced by private loans, including Student CU Connect CUSO and PEAKS loans. These debts are no longer considered Temporary Credits and are not included in the nearly $600 million that is being cancelled.

Impact on Credit Reports

This settlement will only affect your credit if you had Temporary Credits. If you had Temporary Credits, your account will either be marked as paid in full or will be deleted.

The Bankruptcy Process and Potential Payouts

In a bankruptcy, the trustee has to determine and maximize the amount of money available to distribute to the creditors of the bankrupt company. Creditors are people who are owed money by the company. The creditors must file a proof of claim by the court-set deadline to tell the trustee what they believe they are owed. Along with other unsecured creditors, the student class must wait to see if and how much money will be left in the bankruptcy “pot” to distribute to the student class. If, at the end of the bankruptcy there is money in the estate to pay unsecured creditors, the student class will receive a proportional share based on the size of the allowed claim. This will likely be cents on the dollar.

Under the terms of the distribution, Class Members can receive a cash payment. Class members who do not update their information will not be eligible for the July 7, 2022 disbursement date.

Class Counsel and Legal Representation

The Court has approved lawyers (called “Class Counsel”), the Legal Services Center of Harvard Law School and Jenner & Block, to collectively represent all Settlement Class Members. You will not be asked to pay for the services of these attorneys.

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Options for Class Members

Remaining in the Settlement Class

If you do nothing, you will be part of the Settlement Class, and you will be releasing all claims you may have against the Debtors related to the allegations in the case.

Opting Out of the Settlement

You may request to be excluded from the settlement, called “opting out.” If you opt out, you will not be part of the Settlement Class, will not receive any payout on the Proof of Claim, if a payout occurs, and your claims will not be released.

Objecting to the Settlement

Any Settlement Class Member may object to the settlement, or to any settlement term. Settlement Class Members must object in writing. You must file any objection by April 24, 2018. If you object to any part of the settlement agreement and you want to tell the Judge, you must write a letter to the Judge telling him what you do not like about the Settlement Agreement.

Court Approval and Timeline

After the objection and opt out deadline have passed, the court will consider the objections and comments that were submitted. the trustee will seek final approval from the court.

The Broader Context: ITT's Fraud and Impact on Students

Jorge Villalba’s experience underscores the never-ending battle that defrauded student borrowers face in order to get relief and have their legal rights recognized.Navient (previously Sallie Mae) has benefitted and profited from the predatory for-profit college system for decades, making subprime private student loans to hundreds of thousands of students like Jorge Villalba and his mother. These private loan companies were an integral part of a broader system that scammed students and left them in debt they could not repay. For-profit colleges relied on private lenders for their schemes, using them to meet the minimum 10% of revenue required to come from funding outside of federal loans. ITT was one of the most notorious offenders.

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Jorge Villalba attended ITT in 2006. When he visited the campus, he was told about impressive job placement rates and that big companies were in constant contact with the school looking for students and that they would help him get his dream job. The reality was the complete opposite. In fact, Jorge was once told in an interview after graduating with a degree from ITT that the company would not hire anyone from ITT because the students from that school were not capable of doing the minimum job requirements. By that point, ITT had taken over $50,000 in federal student loans and over $43,000 in private student loans from Jorge, with his mother co-signing some of the private loans.

In 2016, the Department of Education cut off federal student aid to ITT. Because almost all of ITT’s revenue came from federal student aid, it declared bankruptcy weeks later. Multiple lawsuits and investigations confirmed ITT’s pervasive fraud.

The Fight for Loan Cancellation: A Case Study

The case of Jorge Villalba, a former ITT student, illustrates the challenges faced by many students defrauded by ITT. Even after the Department of Education deemed Jorge Villalba’s federal student loans invalid and cancelled them due to ITT’s fraud, Navient not only continues to collect on his private loans, the lender misled him about the existence of a path to private debt cancellation.

In a lawsuit filed against Navient, Jorge Villalba, and his mother, Alicia Villalba, demand that their fraudulent private student loans be declared invalid and canceled. The government previously discharged Jorge Villalba’s federal loans through the borrower defense to repayment process, yet when presented with the federal government’s determination that his ITT private loans were also invalid, Navient not only refused to cancel his private loans, it further misled him about the possibility of private debt cancellation.

Jorge Villalba has been fighting ITT and the debt it created for years. In 2017, he was one of a small number of ITT students to have his borrower defense granted and his federal loan discharged. He is also one of the named plaintiffs in the ITT bankruptcy case, which in 2019 helped cancel over $500 million of student debts owed to ITT. Yet, he and his mother continue to struggle with more than $69,000 in private student loans for a bogus education.

“Regardless of the type of loan, it was still fraud,” said Mr. Villalba. “Everything about ITT was a lie. And those lies didn’t just affect me, it has affected my entire family. Even with the federal loans cancelled, my credit has been severely negatively impacted. My mom is getting harassed by debt collectors threatening to garnish her wages and close her bank account. This lawsuit is the only way I can do something about it, for my mom and hopefully for countless others who are in this horrible situation.”

“It was always Jorge’s dream to study and have a career, but with ITT, all the jobs and promises were not real,” said Alicia Villalba. “Jorge is stuck with a degree that he cannot use and he did not receive any benefit by going to ITT, meanwhile, he has to deal with these loans that have affected us all. The credit I worked really hard to get is completely ruined. I cannot even get a credit card of my own, my husband has to have all the finances in his name. It is a lot of stress and worry for the whole family.”

When presented with evidence of ITT’s fraud and the federal debt cancellation, Navient not only rejected Villalba’s efforts to seek private loan cancellation, it denied that he had any right to seek cancellation of his loan based on ITT’s fraud - even though the right to seek that process is stated in the student loan contract. It has also continued to aggressively collect on the Villalbas’ loans.

The Ongoing Struggle for Justice

Despite extensive evidence of illegal behavior, the Department of Education, as well as private lenders like Navient, continue to collect on the student loans that funded ITT’s fraud. These loans are clearly invalid and must be cancelled.

Resources for Former ITT Students

Several organizations are dedicated to assisting former students of for-profit colleges:

The Project on Predatory Student Lending: Established in 2012, the Project on Predatory Student Lending represents former students of the predatory for-profit college industry. Its mission is to litigate to make it legally and financially impossible for the for-profit college industry to cheat students, and to relieve borrowers from fraudulent student loan debt. The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.
Golden & Cardona-Loya LLP: Golden & Cardona-Loya, LLP is a consumer rights law firm founded in 2009 and based in Southern California. Partner Jeremy S. Golden, an attorney since 2003, has dedicated his practice to representing individuals who have had their rights violated by banks, finance companies, credit bureaus and student loan servicers. Mr.

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