What's Next for ITT Tech's Students and Their Half a Billion in Debt?

The for-profit college chain's closure threatens to throw thousands of students off track and saddle taxpayers with their debt.

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Visitors found the doors to the ITT Technical Institute campus in Rancho Cordova, California, closed after ITT Educational Services announced that the school had ceased operating Tuesday.

Photographer: Rich Pedroncelli/AP Photo

When ITT Technical Institute shut down this week, Tim Noufer was just a quarter away from earning his bachelor's degree.

The Army veteran, now 26, had enrolled in 2012, using the GI Bill to get an associate's degree. He stuck around at the for-profit college for his bachelor's, pleased with its night schedule and online class options.

On Tuesday, his dad texted him with the news that his school, with its 29,000 indebted students nationwide, had imploded.

"I'm trying to see how many of my credits will transfer, if any," Noufer said in an interview just a few hours later. "I am very livid." 

The collapse of ITT Tech, owned by ITT Educational Services Inc., wasn't unexpected. The Consumer Financial Protection Bureau had sued it in 2014, saying it misled students into taking out loans with false promises about their career prospects; last year, the Securities and Exchange Commission sued, too, accusing it of defrauding investors. (ITT has vigorously denied all allegations of wrongdoing.)

In June, the U.S. Department of Education demanded ITT stump up additional collateral, beyond the $94.4 million on file, to cover the costs of a potential failure. And last month, after the school's accreditor expressed concern about its operations, the agency barred new students from using federal aid to enroll and ratcheted up its demand for collateral—a move experts warned would trigger the school's demise. ITT soon stopped accepting new students altogether.

"We knew this outcome was a possibility and we have been planning for this contingency," Education Undersecretary Ted Mitchell said on a call with reporters Tuesday. In fact, an online agency presentation Wednesday meant to inform displaced ITT students of their options was dated Sept. 1—five days before ITT Tech announced it was shutting down. "I have no doubt our action was the right one," he added.

But the closure of ITT's 136 campuses threatens to throw some 29,000 indebted students off their educational tracks, and to saddle taxpayers with nearly half a billion dollars in losses. That's because students whose colleges shut down while they're enrolled are eligible to have their federal student loans canceled, subject to certain conditions. When students take that option, the feds record a loss on future loan payments.

Since another big for-profit college chain, Corinthian Colleges Inc., went under last year, the government has as of June canceled at least $97.6 million in student loan balances on students' requests. That's less than half of the roughly $214 million owed by Corinthian students at the time it shut down. ITT's students carry a total of $478.8 million in federal debt. 

The Education Department is frantically trying to limit debt cancellations. Students who transfer even one ITT credit toward what the agency considers "comparable" programs at other schools and then complete their studies aren't eligible to have their loans wiped. But federal regulations don't clearly define "comparable"—giving the department the authority to reject borrowers' pleas for forgiveness. The application borrowers must fill out is similarly vague.

All ITT students who don't complete "comparable" programs elsewhere can apply for debt cancellations.

"We hope they won't," Mitchell emphasized on the call Tuesday, "because we hope that many students will look for transfer opportunities."

In any case, the debt forgiveness process can take months. And applying is no guarantee the loans will be expunged: The Department of Education has rejected 40 percent of applications from former Corinthian students so far, for instance.

A study by the department found that 47 percent of recent borrowers who attended schools that shut down didn't subsequently receive debt cancellations, despite having no records of using federal student aid to enroll at other schools in the following three years.

The Education Department has proposed new regulations that call for the automatic cancellation of loans for borrowers who don't re-enroll in college in the three years after their schools shut down—but for now, it still requires borrowers to apply formally. Its own forecasts estimate that a policy change to automatically cancel those students' loans could cost taxpayers about $135 million a year; the proposal, which doesn't require congressional approval, is pending.

Paperwork and uncertainty aside, many students opt out of debt forgiveness because they simply don't want to delay their degree.

Noufer, for one, isn't exploring the forgiveness process because he's so close to graduation. He hopes another college accepts him and his credits quickly, and he hopes to land a job as a cybersecurity analyst soon after graduating.

Mitchell said Tuesday that he has called and written college presidents to urge them to accept displaced ITT students and "encourage them to be as flexible as they can be" in accepting their credits.

Another agency official said that community college leaders in a handful of states had indicated to the government that they'd be willing to help. And some have posted messages on Facebook trying to recruit former ITT students.

"The important thing right now is for everybody to be focused on making sure the students of ITT Tech are provided a smooth and efficient transition to other education providers to help them complete their studies," said Aaron Shenck, the executive director of the Pennsylvania Association of Private School Administrators who spoke at an Education Department meeting in June focused on ITT's accreditor.

But ITT's only formal agreements for transferring credits are largely with other for-profit schools, and the feds brokered no other such transfer agreements before its collapse.

With no such program in place, Noufer has had to hunt for a new college on his own. He quickly reached out to state universities in his area of Ohio and spoke to the mostly-online nonprofit college Southern New Hampshire University, which promised him a slot to start in late October.

"Right now," he said, "I'm at the waiting point." 

Other former ITT students now stuck in limbo are getting conflicting advice on how to proceed.

Massachusetts Attorney General Maura Healey.
Massachusetts Attorney General Maura Healey.
Photographer: Boston Globe via Getty Images

Massachusetts Attorney General Maura Healey, whose own fraud lawsuit against ITT is still pending, is urging students to consider canceling their federal debt before deciding to transfer their credits, her spokeswoman Jillian Fennimore said. Her office will soon hold seminars to help them fill out the required paperwork. 

The Debt Collective—the activist group behind last year's "debt strike" by former Corinthian students who publicly refused to make payments on their federal loans—is trying to organize all former ITT students to help petition the Education Department to cancel their debts on the basis of what they're calling the school's deceptions.

It's also trying to persuade former students at other for-profit colleges under investigation to use a legal provision that lets debtors have their federal loans canceled if they were misled into taking them on—relief for which records show hundreds of former ITT Tech students have already applied. Hundreds of thousands of Americans have collectively taken out more than $3.4 billion in federal student loans to attend ITT Tech over the last six academic years, according to federal data

Meanwhile, at least one alternative school has tried to take advantage of ITT's demise to boost its own enrollment. Southern New Hampshire University bought Google advertising space that prominently displayed its own website when users searched "ITT Tech," but it took down the ad after a Bloomberg reporter inquired about it, said spokeswoman Libby May.

"We were trying to help students looking for a place to land," she added.

Of the schools Noufer said he contacted, Southern New Hampshire was the only one to offer him a start date. 

Community colleges would also like to enroll former ITT students, said J. Noah Brown, president of the Association of Community College Trustees, but the lack of credit-transfer agreements means college faculty will have to spend lots of time combing through ITT courses to decide whether they deserve community college credits.

He thinks the feds should help former ITT students cancel their federal student loans.

"If the department is serious about helping these students, there should be something on the student debt side so these students can have a fresh start," Brown said. 

But in the immediate aftermath of ITT's closure, students won't be the only ones toiling through the financial muck: ITT's stock stopped trading at $0.36 a share, the Education Department faces mounting scrutiny of its handling of the situation as taxpayers see a potential $478 million on the line, and the average uprooted ITT student with federal loans is swaddled in over $16,000 of debt.

Among the unresolved matters: Where will scholarships allotted to ITT students end up? The National Technical Honor Society, which boasts thousands of ITT students as members and offers $1,000 scholarships to students, has an 800 number fielding calls from those seeking advice on where to go from here, but even it isn't sure what will happen to the money.

"It happened so suddenly, even though there have been rumors," said executive director Allen Powell. "If we've already sent the check to the schools, we don't know what happened to it. We hope it was applied to their loan, but it would have to be reissued [by the school]." ITT Tech spokeswoman Nicole Elam said the company was working to reconcile student accounts and would "process refunds according to related requirements," which she didn't specify.

As for the Education Department, it has learned some lessons from Corinthian's failure, when the agency brokered a sale of dozens of the chain's campuses in an effort consumer advocates said was spurred by a desire to contain the cost of student debt cancellations. Mitchell said his agency has since decided it's "not the role of the federal government" to broker such sales.

But in many ways, the department at times has been inconsistent or slow to act on other agencies' allegations that ITT had defrauded its students. For example, since the CFPB sued the company two years ago, the Education Department has loaned tens of thousands of students at least $758 million to attend ITT Tech, federal data show. And the agency's own proposal to call for automatically cancelling loans for students who don't re-enroll after their schools shut down is still pending.

Kevin Kinser, who leads the education policy studies department at Penn State’s College of Education, said the Department of Education has a conflict in its responsibility to help students eligible for debt relief: It encourages Americans to take on debt to finance their education, but it also expects them to repay it and gives them scant opportunity to discharge it. And Alexis Goldstein, a senior policy analyst at the nonpartisan advocacy group Americans for Financial Reform, said the agency has often put its own interests ahead of student debtors'—which has meant too few eligible borrowers exercise their right to have their debt canceled.

Noufer, however, doesn't blame the Education Department for ITT's demise or derailing his education.

"I'm actually really frustrated with ITT Tech," he said. "They had ample time to fix their problems."

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