ITT Barred from Enrolling Students with Federal Aid

(Photo: Wikimedia, Creative Commons)

(Photo: Wikimedia, Creative Commons)

New steps taken by the Obama administration could force one of the largest for-profit college chains in the country to close, as ITT Technical Institute has been banned from enrolling any new students who receive federal aid.

With close to 43,000 students across the nation, ITT is currently facing accusations from its accreditor that it not only continuously mismanages its finances, but also makes use of questionable recruitment tactics.  In addition, the company is under investigation by both state and federal authorities.

Last week, the Education Department noted that it did not believe ITT would continue to operate after the conclusion of the investigations, and banned the school from accepting students who receive federal loans and grants to pay for tuition.  This type of aid funded 68% of the $850 million the company received in revenue last year.

The department added that in the event the school declares bankruptcy, steps will be taken to help students transfer and ensure that any losses to the government are limited, writes Josh Mitchell for The Wall Street Journal.

ITT will be able to continue to collect aid from students who are currently attending the school, although the loss of any future source of these funds could result in the school being forced to close.  The recession caused many private lenders to stop making loans to students who attend for-profit schools.

As a result of the announcement, parent company ITT Educational Services Inc.’s stock lost over one-third of its value.  Shares came in at $1.40 a piece on the New York Stock Exchange.

The decision comes as part of a larger effort by the Obama administration to crack down on the for-profit college industry.  Officials have continued to accuse these schools of using deceptive practices in an effort to enroll a high number of students who in turn receive a low-quality education and thousands of dollars of debt.

Another for-profit college chain, Corinthian Colleges Inc., liquidated in bankruptcy last year after it was banned by the Education Department from receiving federal aid due to allegations that the company had boosted the career outcomes of its graduates.  However, Corinthian officials denied the claims.

“Millions of dollars in taxpayer money and tens of thousands of students are in jeopardy,” Ted Mitchell, the Education Department’s undersecretary, said in a call with reporters about the move against ITT. “We have both a legal and ethical responsibility to strengthen safeguards in accordance with the public’s trust.”

ITT was given 30 days by the Education Department to post $153 million, in addition to the current reserve requirement of $94 million, in order to prove it will be able to reimburse students and the government in the event it goes out of business.  It remains unknown as to whether the company will be able to come up with the money.

The company has also been banned from awarding raises, bonuses, or severance packages to any executives.

The department has also contacted current students at the school to let them know about their options.  Students can either remain at their school, transfer to another school, or wait and see how the situation plays out over the next few months.

ITT runs over 130 campuses in 38 states, and is considered to be the fifth-largest for-profit college chain by revenue.