The saga of ITT Educational Services, Inc. appears to be drawing closer to an end, with ITT’s bankruptcy trustee and attorneys for former ITT students entering into a proposed class action settlement that would permanently enjoin the trustee’s “collection, assignment, or transfer” of approximately $560 million in receivables resulting from financing provided by ITT to students to pay for tuition and other costs.  The settlement would also require ITT’s bankruptcy estate to refund nearly $3 million collected on such receivables since the bankruptcy filing.

In February 2014, the CFPB filed a lawsuit against ITT in which it alleged that ITT misled student loan borrowers about job placement rates and salaries after graduation, misrepresented information about accreditation and the transferability of credits, and strong-armed students into high-interest loans that the company knew students would be unable to repay.  In March 2015, the district court rejectedITT’s attempt to obtain a dismissal of the CFPB’s complaint based on a challenge to the CFPB’s constitutionality.  In June 2016, ITT’s attempt to appeal the decision was rejected by the Seventh Circuit, which found that the denial did not qualify as an immediately appealable order.  ITT subsequently announced the closure of all of its campuses and filed for bankruptcy protection.

A class action adversary complaint and class proof of claim were filed in ITT’s bankruptcy case by former ITT students.  The complaint and separate proofs of claim were also filed in the bankruptcy cases of ITT’s subsidiaries, ESI Service Corp. and Daniel Webster College, Inc.  In the adversary complaint and proofs of claim, the former students alleged that ITT and its subsidiaries had engaged in unlawful conduct, including unfair and deceptive recruiting, retention, and financial aid practices.  Under the settlement agreement, the class proofs of claim (which asserted a $7.3 billion class claim against each debtor’s estate) would each be allowed in the amount of $1.5 billion “as a pre-petition, unsecured claim no longer subject to objection or challenge” but made subject to adjustments under certain circumstances, such as if the Department of Education discharges, forgives, or cancels federal student loans owed by students in the settlement class.