Rohit Chopra, the former student loan watchdog at the Consumer Financial Protection Bureau, is heading to think tank the Center for American Progress with a plan: To get embattled for-profit ITT Educational Service to change its ways.
On Wednesday, Chopra sent a letter to the company's top investors encouraging them to push for reforms at one of the largest operators of for-profit technical schools. ITT is facing multiple lawsuits from state and federal authorities for steering students into predatory loans and lying to investors about the high rates of defaults on those loans.
Problems at ITT are being compared to those at now-defunct Corinthian Colleges, the for-profit chain that filed for bankruptcy last month. Allegations that Corinthian lied about the success of its programs and trapped students in predatory loans ultimately led to a series of government lawsuits and the loss of its access to federal funding. Now the government must forgive hundreds of millions of dollars in debt amassed by Corinthian students.
"The collapse of Corinthian Colleges was a reminder that so many students can find themselves in so much trouble. And many investors are worried that some of these companies may not be able to survive," said Chopra, who as of Wednesday is a senior fellow at the CAP. "It's important that investors become more engaged in making sure companies are doing what's right by their students. That's in the best interest of everybody."
While at the CFPB, Chopra played a key role in exposing abuses within for-profit colleges and the student loan market. The bureau brought to light troubling lending practice at Corinthian and ITT in separate lawsuits last year.
In the case of ITT, the CFPB 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.
That same loan program is at the heart of a lawsuit the Securities and Exchange Commission filed against ITT last month. 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.
Instead of disclosing 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.
Officials at ITT have disputed all the federal and state charges being made against the company, and question Chopra's motives in reaching out to its investors.
"His letter demonstrates the common government bias against taxpaying educational institutions," said ITT spokeswoman Nicole Elam. "The fact that he would write such a letter to investors days after leaving the CFPB, trumpeting mere allegations against the company, suggests also a personal bias against our institutions and an unwillingness to allow for due process to work."
She added: "Government officials who enter the private sector and immediately seek to trade on their government experience raise serious concerns involving government ethics rules and the appearance of sharp practice."
Officials at the CFPB said Chopra is not violating any of the bureau's ethics rules.
"I have no financial interest in this. I just want to see a market that is working better," Chopra said. "Not only can regulators play a role and policymakers play a role, but also the investors themselves."
ITT is scheduled to hold its annual shareholder meeting on July 27, where investors will have a chance to vote on board members and discuss the direction of the company. The company has a larger number of institutional investors, including BlackRock and Putnam Investments, who manage funds on behalf of pension plans.
With ITT mired in government lawsuits, company shares have been volatile and tumbled 70 percent over the last year. New-student enrollment at ITT as of the end of March was down 16 percent over the prior year, while total enrollment was down 10 percent year over year. ITT, with 130 campuses in 39 states, offers criminal justice, business, information technology, nursing and other programs to about 50,000 students.
"The way to create returns for shareholders is to set up students for success," Chopra said. "Too often management has the incentive to go for short-term enrollment and quick hits, rather than creating a long term sustainable business model that works for everybody. When students are enrolled in programs that help them get ahead and not drowning in debt, that's in everyone's best interest."
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