ITT Educational Services, one of the largest operators of for-profit technical schools, ended operations at all of its ITT Technical Institutes on Tuesday, citing government action to curtail the company’s access to millions of dollars in federal loans and grants, a critical source of revenue.
“With what we believe is a complete disregard by the U.S. Department of Education for due process to the company, hundreds of thousands of current students and alumni and more than 8,000 employees will be negatively affected,” ITT said in a company statement announcing the shutdown. “We reached this decision only after having exhausted the exploration of alternatives, including transfer of the schools to a non-profit or public institution.”
As of Tuesday, the company said it has eliminated the vast majority of the positions held by its more than 8,000 employees. The remaining staff members will stay onboard to help the roughly 35,000 students at ITT’s 137 campuses decide what to do next.
Students can try to transfer their credits to other institutions or start over. Transferring credits to complete the same degree at another institution, though, will make current ITT students ineligible for federal student loan forgiveness under what’s known as a closed-school discharge. Anyone currently enrolled in ITT or who withdrew from the school in the last 120 days is eligible for this form of loan forgiveness. Visit studentaid.gov/ITT for more information.
Undersecretary of Education Ted Mitchell said, on a call with reporters Tuesday, the department is reaching out to ITT students directly to inform them about their options. He said the department is also hosting a series of webinars this week and partnering with states to hold on-site sessions to help ITT students. The department is asking community colleges near ITT locations to accept academic credits from the career school.
“Each student will have to carefully evaluate his or her options,” Mitchell said. “For students who choose to restart or continue their education at another college, we encourage them to carefully consider factors like program quality and cost. It is important for students to continue what they have started. There is nothing more important than a college degree in today’s economy.”
The shutdown of ITT campuses puts hundreds of millions of dollars in federal financial aid on the line because the government is obligated to forgive the federal loans of students affected by the closure. ITT reported almost $850 million in total revenue in 2015, roughly $580 million of which was sourced from federal aid, according to the department. If every ITT students were to request loan forgiveness, taxpayers would be on the hook for half a billion dollars. The $90 million that ITT posted with the department will cover some of the losses.
Financial analysts said the deathblow to ITT came in the form of a letter of credit. Education Department officials demanded that the company provide a letter of credit from a bank assuring the availability of as much as $247 million, up from the $124 million letter of credit ITT already had on file. The letter is meant to protect students and taxpayers if the school is unable to cover federal student-aid liabilities.
Officials at ITT said that having to set aside 40 percent of the money it received in federal financial aid and the additional restrictions “forced us to conclude that we can no longer continue to operate our ITT Tech campuses and provide our students with the quality education they expect and deserve.” The company blamed the government for disrupting “the lives of thousands of hardworking ITT Tech employees and their families.”
Mitchell said he recognized that the closure may “cause disruption, confusion and disappointment,” but the department’s “responsibility is not to any individual institution. It’s to protect all students and all taxpayers.”
ITT said its schools have helped “hundreds of thousands of non-traditional and underserved students improve their lives through career-focused technical education.”
State and federal authorities, however, disagree. ITT has spent much of the past two years clouded by allegations of fraud, deceptive marketing and steering students into predatory loans. The company is being investigated by more than a dozen state attorneys general and two federal agencies.
“The only people responsible for ITT’s collapse are ITT’s executives who sucked students in to low-quality education programs so they could boost profits and take home bigger paychecks,” said Sen. Elizabeth Warren (D-Mass.), a staunch critic of for-profit colleges. “ITT had years to clean up its act and multiple warnings, but instead, it chose to engage in outright fraud to keep the gravy train going to the tune of over $600 million in taxpayer dollars just last year.”
The string of cases against ITT led the for-profit chain’s accreditor, the Accrediting Council for Independent Colleges and Schools, to ask ITT in April to show why it is worthy of accreditation. The accreditation council, the gatekeeper between colleges and billions of dollars in federal financial aid, said the state and federal investigations, lawsuits and regulatory actions against the company called into question ITT’s integrity, financial viability and ability to serve students.
Department officials took action out of concerns raised by the accreditation council. The threat of ITT’s losing accreditation, which would result in tens of thousands of students seeking loan forgiveness, led the department three months ago to request the company set aside more money to cover losses if it were to collapse.
“We have also always worked tirelessly to ensure compliance with all applicable laws and regulations and to uphold our ethic of continuous improvement,” ITT officials said Tuesday. “When we have received inquiries from regulators, we have always been responsive and cooperative.”
Steve Gunderson, president of the for-profit trade group Career Education Colleges and Universities, said the closure of ITT “does not benefit anyone” and called on department officials to “cease their repeated efforts to eliminate private sector higher education as an option in this country.”
Problems between ITT and the department have been building. The agency placed additional restrictions on the company’s use of federal grants and loans in October, after ITT failed to account for millions of dollars in aid that was disbursed to students in the past five years. The company landed on the department’s watch list, known as “heightened cash monitoring,” a year ago for missing the deadline for filing financial statements.
“It’s too simplistic to look at today’s closure as just the result of actions by the Department of Education,” said Ben Miller, senior director for postsecondary education at the Center for American Progress. “Years of mismanagement by ITT leadership put it in a position where ED’s action was necessary and impossible to survive.”
Miller pointed out that the department is not the only federal agency to sound alarms about ITT’s behavior. A trial is set for October 2017 in a lawsuit filed by the Securities and Exchange Commission against the company, chief executive Kevin Modany and former chief financial officer Daniel Fitzpatrick for allegedly making false and misleading statements about the failure of two in-house student-loan programs. Instead of disclosing the tens of millions of dollars in impending losses to investors, the SEC said the company made secret payments on delinquent accounts to delay defaults.
The loan programs in that case are also at the heart of an ongoing Consumer Financial Protection Bureau lawsuit. The consumer watchdog has 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.
ITT has maintained that despite the mounting cases against the company the department’s action to curtail its access to taxpayer funds was “inappropriate and unconstitutional” and that it was not “provided a hearing or an appeal.” The company said the department rejected its proposal to sell campuses. In contrast, the department actively helped broker the sale of over a hundred campuses owned by for-profit giant Corinthian Colleges in 2014.
Mitchell denied rejecting any ITT proposals and said the department has made the decision not to play a role in brokering any sales. “We didn’t see a path forward to providing quality education to ITT Tech students,” he said.
Want to learn more about for-profit colleges, check out these stories: