Students cry for debt relief after for-profit college collapse, while executives admit no wrongdoing

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As a young high school graduate, Joseph Schettler had dreams of working for the FBI or becoming a forensic psychologist. He took steps to make those dreams a reality.

Schettler became the first person in his family to go to college, enrolling in the criminal justice program at ITT Tech in 2006 with assurances from the school that he would surely get a job in his field. Two years later, Schettler graduated with an associate’s degree. But he quickly realized that the time and money he’d spent studying didn’t get him any closer to a job.

When Schettler tried to transfer to a nearby public college, it accepted very few of his credits. “I had to start all over,” Schettler, now 30, said reflecting on that time. “I felt like I just wasted $60,000.”

Several years later, ITT collapsed in bankruptcy under the weight of accusations from state attorneys general and federal regulators that the school misled students and investors. Now two of its top executives appear to be walking away from at least some of the allegations relatively scot-free.

ITT’s chief executive, Kevin Modany, agreed to pay $200,000 to settle a suit with the Securities and Exchange Commission over claims the school misled investors about the impact of two failing student loan programs to the company’s bottom line. The company’s chief financial officer, Daniel Fitzpatrick, will pay $100,000. The executives’ settlement with the SEC follows a deal ITT reached with the agency. Attorneys for Modany and Fitzpatrick didn’t immediately respond to messages seeking comment.

In the last three full years of ITT’s existence, Modany earned more than $1 million annually in total compensation, according to a lawsuit filed by the company’s bankruptcy trustee. Shortly after ITT filed for bankruptcy, Modany asserted a claim, seeking more than $5 million in deferred compensation as part of the process. (In a lawsuit filed earlier this year, the trustee overseeing ITT’s bankruptcy asked the judge to throw out that request.)

Meanwhile, Schettler wakes up before 7 a.m. six days a week at his Michigan home and heads to his job that has nothing to do with his original dream of working in criminal justice. He also does military service. In total, Schettler said he earns less than $80,000 per year. He said his time at ITT and the intervening years have taken their toll. “I have no drive or no ambition to go to school,” he said. “I sell cars now for a living.”

The contrast in fates between former ITT students like Schettler and the company’s top executives is “incredibly grotesque,” said Toby Merrill, the director of Harvard Law School’s Project on Predatory Lending. At the same time that the students are coping with debt that’s not dischargeable in bankruptcy that they can’t get rid of by filing for bankruptcy and being told to take their degrees off their résumés when job-hunting, “the shell of the company is dischargeable in bankruptcy and the debt is gone,” she said.

And the executives are “being told that they can just walk away,” added Merrill, who is representing former ITT students as part of the bankruptcy process.

Thousands of students are clamoring for debt relief

Schettler is one of thousands of former ITT students hoping to get some relief from his debt through the process. Earlier this year, the trustee overseeing ITT’s bankruptcy urged the judge in the case to accept a $1.5 billion settlement with a class of former students. Once the deal gets final approval, the students would be in line with other creditors to get access to any money left over when ITT’s bankruptcy case is wrapped up. It would also cancel nearly $600 million in money ITT claimed students owed the school.

But the agreement doesn’t address the bulk of students’ debt, which is held by the federal government because many students took out federal student loans. Even with the deal, “The students won’t be closer to an outcome that could reasonably be described as fair in a bankruptcy setting until that debt is gone,” Merrill said.

Former ITT students may face challenges getting relief from their debt through other avenues. The Department of Education is in the midst of re-writing a rule that provides federal student loan borrowers with relief when they’ve been misled by their schools. The rule, known as borrower defense to repayment, has been on the books since the 1990s, but was rarely used until 2015 when thousands of borrowers began clamoring for relief amid the collapse of major for-profit college chains.

After pressure from activists, the Obama administration wrote regulations to create a process for borrowers seeking relief and a system for officials to evaluate their claims. Now the Department, under DeVos, is looking to change that system, including by offering only partial relief to some borrowers who say they’ve been misled.

Schletter, who is married with two kids, knows it’s unlikely his debt will be completely wiped out, but he’s hoping for some relief. “I’m here busting my rear to provide for my family and that debt right there doesn’t help,” he said. As for ITT and its officials, he feels like “they’re getting off” without enough of a punishment.

“They wanted to make money, they wanted to get rich and they didn’t care how people suffered,” he said.

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