Dear Commons Community,
The U.S. Department of Education imposed strict new rules last week on ITT Educational Services, barring it from enrolling new students who use federal financial aid and ordering it to pay $153 million to the department within 30 days to cover student refunds if its schools close down. ITT has been coming under increased scrutiny by the U.S. DOE since 2014. As reported in the New York Times:
“John B. King Jr., the secretary of education, said the department took action to protect both ITT’s students and the taxpayers who are on the hook for losses when students default on their federal aid. “Looking at all of the risk factors, it’s clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds,” Mr. King said in a statement.
The action threatens the viability of the beleaguered company, which like most for-profit education entities relies heavily on government financial aid programs for students to fund its operations. As of June 30, according to a regulatory filing, ITT had only $78 million in cash on its balance sheet.
An email message requesting comment from an ITT spokeswoman late Thursday night was not immediately returned.
ITT operates 137 campuses in 39 states, providing career-oriented programs to 43,000 students at ITT Technical Institute and Daniel Webster College locations. ITT was once a highflying stock, trading above $75 a share in 2012. On Thursday, its shares closed at $1.40.
The company has been under increased scrutiny by the Education Department since 2014 and has been accused by both federal and state regulators of misleading students about the quality of its programs and their employment potential upon graduation. The Consumer Financial Protection Bureau filed a lawsuit against ITT two years ago, accusing the college chain of predatory student lending…
The Education Department also required ITT to develop “teach-out” plans for current students, allowing them to finish their programs at other colleges if ITT shuts down.
ITT, based in Carmel, Ind., must also inform its students that its accreditor, the Accrediting Council for Independent Colleges and Schools, has determined that the institution is not in compliance with its criteria. That determination was made this month. Earlier this year, ITT said it believed its schools were in compliance, but it also acknowledged that if the schools lost the accreditation, they would no longer have access to government loan programs.
Those programs are the lifeblood of ITT and other for-profit education companies. Federal aid accounted for almost 70 percent of ITT’s $850 million in revenues last year, the Education Department said.
Consumer advocates praised the department’s action against ITT. “We applaud the Department of Education for taking real action to prevent ITT from recruiting more students to take on federal student loan debt to attend an institution that was found by its accreditor not to fully satisfy even minimal standards in critical areas,” Abby Shafroth, a staff attorney for the National Consumer Law Center’s Student Loan Borrower Assistance Project, said in a statement.”
The news for the for-profit higher education sector keeps getting bad. They have no one to blame but themselves. However, the students and taxpayers will be left holding the bag.