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Should I Just Stop Making Payments on My ITT Tech Private Student Loans? – Andy

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Question:

Dear Steve,

I’m sure you heard that ITT Tech has recently closed down permanently. I graduated from there in 2007 and I still owe about 40K (mostly private loans) on a useless associates degree. Employers won’t hire someone that has a degree from a failed school that has been accused of fraud by many government organizations. I was basically defrauded by ITT Tech and was lied into pulling out high interest private student loans to finish obtaining my degree. I’ve been paying on these loans for close to 10 years and the principal is still very high with only about $43 a month going towards the principal on a $227 monthly payment.

Do I have any recourse if I quit paying on my private loans? I’m going to continue paying the federal loans as I don’t want to deal with automatic garnishment of my wages but the private loans are just too much. I’m thinking about defaulting and waiting for the inevitable lawsuit and taking my chances in court. Do you think I have any kind of chance at getting them discharged as a result of ITT Tech closing down for fraud?

Andy

Answer:

Dear Andy,

The first thing I would do right now is nothing. Meaning, don’t do anything drastic that would have ramifications unless you have a concrete plan in place.

Look, I totally get the issue about being outraged over ITT Tech, the school, and the degree. But the tragedy of for-profit schools did not start or end with ITT Tech.

As I write this ITT Tech has been accused of nefarious activities but not found guilty of fraud. Here is exactly what the Department of Education has to say about fraud.

I already completed my ITT program but I feel like I was defrauded. Can I get my money back?

The actions we’re taking against ITT today are based on the operational and financial risk they pose to students and taxpayers, not on a finding that they defrauded students. There are, however, a number of open federal and state investigations into ITT campuses. If those investigations find evidence of fraud or other illegal behavior surrounding your specific program, you might be eligible for relief. You can also go to Federal Student Aid’s borrower defense page to learn more about how to file a claim if you believe the school misled you.”Source

So as it stands today, unless you can prove you were defrauded under state law, then your Borrower Defense claims for your federal loans will not go anywhere at the moment. You should read The Borrower Defense Pothole That Will Swallow Many Trying to Forgive Student Loans. All that being said, none of that applies to private student loans.

Defaulting on private student loans can be a strategy but it has consequences. See Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.

But if you think you could rely on a fraud argument alone to negate private student loans when you are sued for default, well my personal opinion is that would be a losing battle.

But you should always run an idea like that past an attorney who is licensed in the state you live in. I am not an attorney.

But here is why I think it is problematic. An argument that ITT was a fraud is not between you and your private student loan lender. You should focus on issues surrounding the loan, and there may be some, see this. But the position that a lender should give you consideration because you were allegedly defrauded by a third-party, the school, seems once removed.

Now you might want to pursue a fraud action against the school or use a default or bankruptcy strategy against the private student loan lender, but just don’t create a hybrid approach with little chance of success.

So if you wanted to wait till a fraud ruling was found against ITT Tech or you could find a lawyer who is licensed in your state to come up with a strategy of dealing with the private loans, I’d pause and take a deep breath first.

But that’s just my thoughts.


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