Education Department discharges $500 million in debt for 18,000 ITT students in sign of borrower defense progress

The Department of Education (ED) is paying $ 500 million in student loan debt held by 18,000 borrowers who were defrauded by the now-defunct for-profit chain ITT Tech, a sign that the Biden government is working to clear the backlog on borrower defense to tackle.
"Our action today will give thousands of borrowers the fresh start and the relief they deserve after ITT repeatedly lied to them," Education Minister Miguel Cardona said in a statement. "Today's action is part of the Biden-Harris administration's continued commitment to advocate for borrowers when their institutions take advantage of them."
The lawsuit pertains to certain borrowers who had filed a borrower defense motion that students with state debt may apply if they believe a college or professional education has misled them "or in breach has committed other misconduct against certain state laws ". the Federal Office for Student Aid of the ED.
"Many of these borrowers have been waiting a long time for relief and we need to work quickly to make decisions for those whose claims are pending," Cardona said. "This work also underscores the need for ongoing accountability so that institutions will never again be able to commit this widespread deception."
U.S. Secretary of Education Miguel Cardona speaks during a panel discussion at Mercy College on June 14, 2021 in the Pelham Bay neighborhood of the Bronx in New York City. (Photo by Michael M. Santiago / Getty Images)
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Borrower defense requests spiked after the Obama administration cracked down on predatory for-profit colleges and created new regulations in 2015, but the mechanism for defrauded borrowers seeking debt relief collapsed during the Trump administration. (ED noted that Wednesday's announcement is the "first approval by the department of a new category of borrower defense claims since January 2017.")
"That's good news ... it's a crack in the door and some of our customers are finally starting to see the light of day seeping through," said Eileen Connor, legal director at Project on Predatory Student Lending, which represents various former for-profit students in various ongoing lawsuits said Yahoo Finance.
According to ED data from Yahoo Finance, 208,486 defense claims from borrowers were unresolved as of December 2020, while more than 100,000 other claims were "settled" by being systematically denied during the Trump administration. It is unclear whether the Biden government will reassess all claims that have been wrongly denied.
"This is good news for 18,000 borrowers who have waited too long, and it seems that the Biden administration is really looking to help people in need of layoffs," Alex Elson, vice president and co-founder of Student Defense Advocacy, told Yahoo! this makes it all the more confusing that they are so reluctant to use their powers to immediately and automatically help the myriad additional borrowers who are still waiting. "
"We can't ask these borrowers to wait another day"
The ITT Technical Institute filed for bankruptcy in 2016, closing all campuses affecting 149 locations and approximately 40,000 students amid legal proceedings and investigations into alleged predatory lending practices.
According to an ED official who requested anonymity to discuss the details of the announcement, the 18,000 ITT students who saw their loans withdrawn were identified based on their "single borrower defense request" and based on "accompanying evidence" and " all relevant information in records held by ED and in school filings, as well as any other information obtained in connection with the investigation. "
The evidence was presented by agencies such as the Iowa Attorney General, the Consumer Financial Protection Bureau, and Veterans Education Success.
"To date, ED has approved more than 18,000 claims from former ITT students, but our work continues to review additional claims from former ITT students and students from other institutions," the official added.
The latest move breaks approximately 72% of ITT borrowers' defense receivables inventory. The agency will begin notifying borrowers of their approvals "in the coming weeks," the official said, and then work to settle $ 500 million in loan balances.
An ITT commercial. (Screenshot)
In a press release, ED stated that ITT made students "repeated and significant misrepresentations about the income they could expect and the jobs they could get after graduation between 2005 and the facility's closure in 2016".
ED also noted that ITT "misled students that they could transfer their credits to other institutions from January 2007 to October 2014 due to their time at ITT."
Yan Cao, a senior fellow of the Century Foundation, noted that an additional 25,000 defense claims have been filed by borrowers since the inception of the Biden administration, and stressed that the ED needs to "accelerate the pace" to help defrauded borrowers.
"In September, it will be five years since ITT filed for bankruptcy, and by then the collection of student loans will be resumed," said Connor, referring to the end of the pandemic hiatus in government-sponsored loan payments. “We cannot ask these borrowers to wait another day or pay another dollar on loans that should never have been made. We need more from the Department of Education to defend borrowers, and we need it fast. "
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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.
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