Updated with a response from ITT.
Although the department worked with ITT over the summer to clean up the accounting problems, officials say the company provided conflicting information about its disbursal of Pell Grants, a form of financial aid for needy college students. Because of the sloppy accounting the department is ratcheting up the restrictions: barring ITT from disbursing federal financial aid before the start of classes, requiring the school submit monthly enrollment rosters with aid information, among other things.
Education Undersecretary Ted Mitchell said in an e-mail that the decision was part of the department’s “responsibility to protect students and hardworking taxpayers’ dollars.”
ITT spokeswoman Nicole Elam said the company is “complying with the department’s requirements and is already process of implementing measures to fully address the relates reporting and administrative matters.” Despite the “increased administrative burden,” ITT doesn’t believe the restrictions will affect the timely award of financial aid or impact its earnings. The company’s shares were up 3 percent in early trading on Tuesday.
There is a lot more interest in cash monitoring these days because of the collapse of for-profit giant Corinthian Colleges. The company, which ran the Everest, Heald College and WyoTech schools, was under monitoring last summer for missing financial reporting deadlines. The government delayed the schools’ reimbursement of federal student loans for nearly a month, leaving the company strapped for cash and on the brink of closing.
Corinthian pleaded with the department for a lifeline to keep the doors open and received $16 million in federal student aid funds under the condition that it would sell or close its schools. Several months later, student debt collector ECMC Group purchased more than half of Corinthian’s 107 campuses.
While officials at the department say ITT’s troubles are in no way related to Corinthian’s problems, Monday’s decision arrives as the technical school is under great scrutiny. The company revealed at the end of September that the Department of Justice is investigating whether it lied to the Department of Education about executive compensation. ITT is also battling two separate lawsuits from the Consumer Financial Protection Bureau and the Securities and Exchange Commission.
In May, the SEC filed civil fraud charges against the company, chief executive Kevin Modany and chief financial officer Daniel Fitzpatrick for allegedly making false and misleading statements about the failure of two in-house student-loan programs. Rather than disclose the tens of millions of dollars in impending losses to investors, regulators say the company made secret payments on delinquent accounts to delay defaults. Executives assured investors in conference calls that the programs were performing well, while ITT’s obligations to pay out on soured loans began to balloon.
The loan programs in that case are also at the heart of the CFPB lawsuit that was filed a year ago. The consumer watchdog accused the company of providing zero-interest loans to students but failing to tell them that they would be kicked out of school if they didn’t repay in a year. When students could not pay up, ITT allegedly forced them to take out high-interest loans to repay the first ones, the CFPB said.
All told, ITT is being investigated by at least 18 attorneys general and three federal agencies.
“The bright lights of state and federal regulators are shining on the wrongdoing and abuses of ITT Tech like never before,” Sen. Richard Durbin (D-Ill) said, in a statement. “At the same time, this company, deemed ‘not financially responsible’ by the U.S. Department of Education, continues to receive billions in federal Title IV dollars. Isn’t it time to protect students and taxpayers and turn out the lights at ITT?”
The lawsuits are not the only headaches for executives at ITT. New-student enrollment at ITT as of the end of June was down 19 percent over the prior year, while total enrollment was down 14 percent year over year. The school on Monday suspended new enrollment at several of its 135 campuses, citing the need to “research local market demands.”
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