LegiStorm

Summary:

On August 25, 2016, the U.S. Department of Education (ED) imposed a variety of additional Higher Education Act (HEA) Title IV federal student aid program participation requirements on ITT Educational Services, Inc. (ITT-ESI). ITT-ESI is the publically traded parent company of the private, for-profit institutions of higher education (IHEs) ITT Technical Institutes (ITTs) and Daniel Webster College (DWC). On September 6, 2016, ITT-ESI announced the closure of all 136 ITT campuses. As a result, approximately 35,000 enrolled students, at 136 campuses, across 38 states became unable to continue in their educational programs. On September 14, 2016, ITT-ESI announced it would cease all operations effective September 16, 2016. This CRS Insight provides a summary of the circumstances leading up to ITT's closure. It also describes the effects of ITT's closure on its students and the federal student aid they may have received. Department of Education Requirements In August 2014, ED found ITT-ESI had not complied with HEA Title IV federal student aid requirements related to the timely submission of annual compliance audits and audited financial statements. Between 2014 and 2016, multiple civil lawsuits were also filed against ITT-ESI by both federal and state law enforcement agencies. In addition, in 2016 the accrediting agency ITT found it out of compliance with many of its accreditation standards. Due to the numerous ongoing concerns about ITT-ESI, starting in August 2014, ED imposed a variety of additional Title IV program participation requirements on ITT-ESI, and on August 25, 2016, ED placed further requirements on it. The August 2016 sanctions included requiring ITT-ESI to increase its outstanding letter of credit with ED (collateral assuring ED that sufficient funds are available to cover institutional obligations such as student refunds, if needed) from approximately $94,000,000 to approximately $247,000,000 (40% of Title IV funds received by ITT-ESI in the previous fiscal year). In addition, all ITT campuses were required to disburse Title IV funds under the Heightened Cash Management 2 payment method, which requires IHEs to disburse student aid from institutional funds before requesting reimbursement for those funds by ED and cease enrollment of new students who may receive Title IV funds. ITT's Closure and Its Effect on Students On September 6, 2016, ITT-ESI announced it would immediately cease academic operations at all ITT campuses, and on September 14, 2016, it announced it would cease operations entirely, effective September 16, 2016. The discontinuation of academic operations immediately affected the approximately 35,000 students who were enrolled at institutions owned by ITT-ESI and may affect formerly enrolled students; however, the overall effect of the schools' closures is not yet known. Federal law makes several options available to help mitigate the adverse impacts of a school closure on students. Transfer of Credit Former students at all ITT-ESI owned schools may be able to continue their education by transferring credits earned at those schools to another IHE. Although decisions regarding the acceptance of credit transfers are within the discretion of the accepting IHE, ED has indicated it is working with states to host in-person transfer fairs to inform students of their options. In addition, DWC entered into a teach-out agreement with Southern New Hampshire University (SNHU), which will allow DWC students to continue their educational programs for the current academic year at DWC and then transfer to SNHU in the following academic year. Closed School Discharge Students who were enrolled at an ITT or DWC on the date of closure or within 120 days prior to its closure and unable to complete their educational program due to the school's closure may be eligible to have the full balance of their outstanding HEA Title IV loans borrowed for attendance at an ITT-ESI owned IHE discharged (i.e., Direct Loans, Federal Family Education Loans, and Perkins Loans). In addition, borrowers whose loans are discharged are eligible to be reimbursed for any amount previously paid on those loans, and the discharge will be reported to credit bureaus so that any adverse credit history associated with the loan (e.g., default) may be deleted from the borrower's credit history. However, formerly enrolled students who choose to complete a comparable educational program at another IHE by transferring credits or through a teach-out agreement are ineligible to have their loans discharged due to ITT or DWC closures. To apply for a closed-school discharge, borrowers must submit the Closed School Discharge Application and return it to their loan servicer. ED estimates up to $500 million in federal student loans borrowed by former ITT students may be eligible for closed-school discharge. Borrowers whose loans are discharged due to school closure will not incur a federal income tax liability for the amount of student loan debt forgiven. Defense to Repayment Borrowers of Direct Loans and Federal Family Education Loans who are ineligible to have their loans discharged due to an ITT-ESI owned school's closure (e.g., borrowers who were not enrolled at ITT within 120 days of its closure) may seek debt relief on their loans by asserting, as a defense to repayment (DTR) of their loan, acts or omissions by the school that would give rise to a cause of action under applicable state law. If a borrower's defense is successful, ED will determine the amount of debt relief to which the borrower is entitled, which can include relief from repaying all or part of the borrower's outstanding loan balance and reimbursement for previous amounts paid toward the loan. In addition, the discharge will be reported to credit bureaus so that any adverse credit history associated with the loan may be deleted from the borrower's credit history. To assert a DTR, borrowers must file a claim with ED. Currently, there is no standardized form a borrower must submit; however, ED has provided details on the information borrowers should include in their claims. Borrowers whose loans are discharged under DTR may incur a federal income tax liability for the amount of student loan debt forgiven.