In the light of the ITT technical Institute bankruptcy, many students are left with high student loan debt and no degree. But there may be some relief available for those who have not yet graduated. It is the purpose of this post to explore those options that the reader might benefit, or pass the information along.
Perhaps a little explanation of the student dilemma in this typical “trade school” is in order. When a school such as ITT closes, the students can’t get the associates, bachelors, and master degrees hoped for; thus, they are deprived of the “benefit of the bargain”.
For the student, the denial is more than just denial of ego satisfaction. He has pinned his hopes on the earning power that degree represents for him. He anticipates that all will benefit from his efforts. It will be wonderful for his family.
The school has a different idea: it is called a profit model. The measuring stick is the bottom line. Product quality, marketing, and management are all expenses. The less expenses the better. This is what benefits the bottom line. In this line of thinking, there is no value in educating the customer to become a well informed shopper. The prospective student doesn’t need to know about education cost & education value; such a concern would just interrupt the sales process.
But back to the end result:the school closes. Now student loan debt is owed on a college degree that won’t be obtained at this institution, and may never be obtained at all. Without a change of circumstance, the economic power that college degree represents will never materialize. Some students lose hope, feeling themselves further behind, with more debt and less earning power than planned.
The “Closed school Discharge” is a mechanism put in place by the federal government, to allow the student who cannot complete his degree to seek relief from the student loan burden which he must carry. The information on that federal program can be found at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/closed-school. The form which needs to be filled out to apply for administrative discharge can be found at:
Of course, use of government websites is not always as simple as it looks. There are certain “gotchas” in the administrative procedure, which do not allow the student who transfers his credits to another school (or has already received his degree) to seek forgiveness of his student loans.
As is true with many government programs, the “simple” process has become quite complex. The student who wants to transfer his credits to a new institution often finds most (if not all) of his credits will not transfer. This is because of lack of accreditation for the trade school from which he is transferring.
ITT Educational Services has increasingly been the subject of state and federal investigations in recent years. These actions have resulted often in sanctions against ITT and penalties. Nevertheless, the US Department of Education does not recognize the validity of their own investigations, when the student who has his diploma petitions for student loan relief .
In essence, the Department of Education wants each student to prove that he was defrauded, that “what he got” was too expensive for the results obtained. In short, the student must prove the price of the education far outweighed its real world earning potential.
This burden falls on the student, even though both federal and many state governments are currently investigating inadequate instruction in rogue schools taking federal student loan moies. Many of these investigations show oversight of federal student loan lending has been lacking. Most often, significant findings of neglect and abuse on the part of trade schools were left unwatched but then “discovered” by government agencies.
So it can be tough getting an administrative discharge. If denied, an appeal can always be taken directly to the Department of Education. This is where the counsel of an attorney experienced in this area can be quite useful.
If the Department of Education administrative discharge appeal is not effective, every student has access to the federal courts. The student may seek to address the student loan debt directly with the Department of Education in an “adversary complaint” in the bankruptcy courts.
Due to the fact that ITT and other schools have recently lost their entitlement to federal funds from student loans, the courts will be burdened more and more with these issues, as will the Department of Education in considering administrative discharges. At this point in time, it seems that many of the “trade schools” in all probability will be closing in the coming months.
The law on student loans is evolving, as new facts come to light about trade schools, quality of instruction, and quality of job placements. The ITT bankruptcy does not bode well for the student who did not get the benefit of his bargain, either in quality of instruction or job placement: he will have no recourse against ITT. His only recourse will be against the federal Department of Education, a powerful adversary.
Nevertheless, it is the authors opinion that any student who has not been able to complete his degree due to school closure should apply for the administrative discharge. If there are issues and complexities, as always seem to arise, competent legal counsel should be used to sort out the mess.
The hope of the next generation that an education will bring them to a satisfying adulthood hangs in the balance. We should not let these young folks down, and saddle them with debt which cannot be paid off.