The Education Department said Wednesday that it will cancel the federal student loans of nearly 16,000 people defrauded by ITT Technical Institute, DeVry University and Minnesota School of Business/Globe University.
This marks the first time the department has approved debt relief claims from former students of an institution, DeVry, that is still open and receiving federal financial aid funding.
ITT Tech filed for bankruptcy and closed all 136 of its campuses in 2016, including those in Indianapolis, South Bend, Fort Wayne and Newburgh, after being hit with a series of sanctions by the Obama administration. The chain’s parent company, ITT Educational Services Inc., was based in Carmel.
Nearly half a million people have petitioned the department to forgive their loans under a statute known as “borrower defense to repayment.” Most attended colleges that went belly up, leaving the federal government to foot the bill for loan forgiveness.
But with DeVry, the department can, and says it will, recoup its costs. The department has identified about 1,800 DeVry students who are eligible for $71.7 million in debt relief.
DeVry, once one of the largest publicly traded for-profit colleges, changed ownership and became a private entity in 2018, when Adtalem Global Education sold it to Cogswell Education. University spokesperson Donna Shaults said the Education Department’s fraud allegations predate the current leadership, but the school disagrees with the agency’s position.
James Kvaal, the undersecretary of education, told reporters Wednesday that the current owner will be liable for the claims. Asked if the department will cut off DeVry’s access to federal student aid in light of the evidence of impropriety, Kvaal said that the misconduct ended several years ago but that the department will keep an eye on the university.
DeVry is currently under a form of oversight known as heightened cash monitoring that requires the university to provide certain documentation before accessing federal financial aid dollars.
“It is really important to show that we’re willing to take these actions against open schools and that there will be liabilities for the current owners to deter wrongdoing,” Kvaal said. “We will be watching very carefully wherever we have reason to think that there might be wrongdoing.”
From 2008 to 2015, the department said, DeVry misled prospective students with claims that 90% of its graduates landed jobs in their field of study within six months of earning a credential. In reality, the university’s actual job placement was around 58%.
“The Department of Education mischaracterizes DeVry’s calculation and disclosure of graduate outcomes in certain advertising, and we do not agree with the conclusions they have reached,” Shaults said in a statement.
The alleged deception was the basis for a $100 million settlement DeVry reached with the Federal Trade Commission in 2016. It also led the department in 2016 to request that DeVry provide a letter of credit from a bank assuring the availability of $68.4 million to participate in the federal financial aid program.
That money could have been used to cover the cost of the student loan discharges, but the letter of credit expired last year, according to a securities filing from DeVry’s former owner Adtalem.
The Education Department says the expiration of the letter of credit will not deter the agency from recouping the cost of the discharges. It anticipates the number of approved claims will grow as it reviews outstanding petitions from former DeVry students.
In addition to the DeVry findings, the department will provide another $343.7 million in borrower defense discharges to almost 14,000 borrowers. This comes after new evidence of misconduct related to Westwood College, the criminal justice programs at Minnesota School of Business/Globe University and the nursing program at ITT Tech. It also includes $284.5 million in discharges to over 11,900 students who attended schools such as Corinthian Colleges and Marinello Schools of Beauty.
All of the institutions are accused of lying to prospective students about either their job placement rates or program accreditation. College students are entitled to a discharge of their debt when their college uses illegal and deceptive tactics to persuade them to borrow.
This is the fourth finding against ITT Tech that has led to the approval of debt relief claims by the department. All told, the evidence has resulted in about $660 million in discharges for roughly 23,000 students.
Student advocates say far more could be done.
A report released Wednesday by the Project on Predatory Student Lending details massive fraud at ITT Tech that authors say demands full cancellation of federal student loans held by all former enrollees. It details the school’s aggressive recruiting, pressuring of students into enrolling and maxing out their student loans. Authors say memos and other documents show this was a feature of the business model orchestrated by senior leaders.
“The picture that emerges from our deep dive into ITT’s internal workings is of a large-scale loan-packaging operation. The loans were the object, not education or career training,” said Eileen Connor, director of the Project on Predatory Student Lending. “Every student who attended ITT is a victim of its fraud, and each one deserves justice. The cancellation of all remaining ITT debt is the only conscionable and reasonable course of action.”
Connor and other student advocates have been critical of what they say is the Biden administration’s piecemeal approach to clearing out a backlog of borrower defense claims.
Applications piled up at the department amid a series of college closures and the Trump administration’s efforts to delay and limit loan cancellation. Advocates and borrowers had hoped Biden’s team would make quick work of the claims but have been disappointed by the pace of approvals and stalled litigation they say could speed up the effort.
The Biden administration has yet to resolve a Trump-era lawsuit brought by applicants demanding the department process their claims. The federal judge in the case, which involves Connor’s organization, criticized the department last month for its lack of progress on the matter. At a hearing earlier this week, attorneys for the Education Department said they are diligently working to settle the case.
Wednesday’s actions bring the Biden administration’s total amount of approved relief under borrower defense to repayment to approximately $2 billion for more than 107,000 borrowers.