For-Profit Chain ITT Under Pressure from Obama Administration

(Photo: Susan Goldman, Bloomberg News)

(Photo: Susan Goldman, Bloomberg News)

The US Department of Education has sent a letter to ITT Educational Services requesting that the for-profit chain put some funding aside in order to cover any losses should the company collapse as a result of ongoing state and federal investigations.

The company, which has 43,000 students across the nation, is currently under investigation by 19 state attorneys general and at least two federal agencies concerning allegations that ITT is involved in unprofessional marketing and recruitment practices. The company could face losing access to federal funding as a result of the investigations. A decision on the matter will come later in the summer when it appears before its accrediting agency.

The Education Department said the company needs to set aside at least $123.7 million in an escrow account that currently holds $79.7 million. The "letter of credit," expected to equal 20% of the federal funds collected by the school last year, will be used to cover expenses "should the institution precipitously close or terminate classes at other than the end of an academic period."

The department considers these expenses to include tuition reimbursement for students, any costs associated with allowing students to transfer to other schools, and "institutional obligations" to the federal government, reports Josh Mitchell for The Wall Street Journal.

ITT has been hit with a number of lawsuits and investigations. Most recently, Massachusetts Attorney General Maura Healey filed a lawsuit claiming ITT pressured students to enroll in a poor-quality program. According to former recruiters, they were expected to call at least 100 prospective students each day and were publicly shamed or fired if they did not.

In addition, employees have been accused of telling prospective students at two campuses in Massachusetts that 80-100% of ITT graduates found jobs either in or related to their field of study. However, the actual job placement rate was found to be closer to 50%, including graduates who held internships, writes Danielle Douglas-Gabriel for The Washington Post.

Nicole Elam, an ITT spokeswoman, said the company has done nothing wrong and is currently reviewing the request being made by the department. She went on to say that the Accrediting Council for Independent Colleges and Schools is being criticized by the government and student-activist groups who argue that not enough was done to prevent abuses by the former Corinthian Colleges, Inc.

"Under extreme political pressure, the Accrediting Council for Independent Colleges and Schools took an unexpected action with ITT Educational Services Inc. by sending a show-cause letter to request our institution address various unsupported allegations," Ms. Elam said. "We continue to cooperate with all regulatory authorities as new mandates are levied upon us."

Corinthian shut its doors last year, liquidating its assets as the result of a bankruptcy filed after accusations surfaced from federal and state authorities that the school had released advertisements lying about the jobs and earnings of its graduates. Corinthian maintains that it did nothing wrong.

The fifth-largest for-profit chain by revenue, ITT reports over 130 campuses in operation in 38 states. The majority of its revenue comes through federal loans and grants used by its students to pay for tuition.

ITT must maintain accreditation in order to continue to receive federal student loan funding, which accounts for 80% of ITT's revenue. The company said that should they lose access to that funding they will not be able to continue to operate.

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