ITT Filed Chapter 7 Bankruptcy: Can of Worms Opened

ITT Educational Services filed for a chapter 7 liquidation bankruptcy

On September 19 in an Indianapolis bankruptcy court, 50-year-old for-profit college ITT filed chapter 7 bankruptcy. About 35,000 students have lost immediate access to their education as 136 schools in 38 states ceased operations. ITT’s precipitous collapse follows that of Corinthian Colleges and affiliated schools such as Everest, Heald, and WyoTech last year.


The college had been under scrutiny for some time from the federal government, as crackdowns on the for-profit colleges began in earnest in August 2014. These investigations cited concerns about the organization’s financial health, integrity, and ability to provide students with a quality education. The Consumer Financial Protection Bureau also took action against the school in 2014 for overstating job placement statistics, job prospects for students after graduation, and steering students into high-priced private loans. A further federal investigation in 2015 saw the SEC bringing fraud charges against the school and two executives in 2015 over concealing losses from the school’s private student loan program from investors.


Finally, in August, ITT was found to have not met standards of its accrediting body, and was barred by the Department of Education from enrolling any new students relying on federal financial aid. At the same time the company was inquired to increase it surety bond by $152.9 million to $247.3 million – far in excess of the cash school had on hand. The bad news piled up when Cerberus Capital Management declared ITT in default on a secured loan, and demanded $34.5 million as the outstanding balance. The company lists liabilities that could reach $500 million. Further investigations are pending before state attorneys general, and other federal agencies. The trustee has his work cut out for him.


Now some former students have instituted a debt strike, refusing to repay federal student loans. The Washington Post reports that this is a move to pressure the government into canceling those debts outright. This may be a move to claim “borrower defense to repayment.” This tactic requires a student to prove that the school was in violation of the law and/or using deceptive tactics to get them to take out student loans. This form of loan forgiveness can take a very long time, but the forgiveness is complete.


The Department of Education has stepped up, rapidly opening a website called, designed to help former ITT students and students of other colleges that have been closed, to figure out their next moves. Website offers on-call advisors who can help with transfer credits, financial aid, and available options for handling their student loan debt. Further news and updates are available on the federal student aid website, including webinar schedules, and other information that may be helpful.


Finally, if you need help getting on top of your student loans, or proving a borrower defense to repayment, we are here to help you and to make sure that your rights are protected. Call to schedule a free initial consultation at our West Palm Beach or Fort Lauderdale office.

Published by
Chad Van Horn

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