U.S. Cuts Off ITT Tech

Education Department's new sanctions against the for-profit college include a ban on enrolling new students who receive federal aid and tougher financial oversight.

August 26, 2016

The U.S. Department of Education on Thursday prohibited ITT Educational Services, the parent company of ITT Technical Institutes, from enrolling new students who use federal financial aid.

The devastating ban, along with a set of increased federal oversight of the for-profit institution, continues several years of federal scrutiny of ITT Tech, which has more than 130 campuses in 38 states and enrolled approximately 45,000 people last year. It could mean the end for the institution.

"Our responsibility is first and foremost to protect students and taxpayers," U.S. Secretary of Education John B. King Jr. said during a phone call with reporters. "Looking at all of the risk factors, it's clear we need to increase financial protection and it wouldn't be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds."

King said the ban and the increased oversight was due to ITT's accreditor, the Accrediting Council for Independent Colleges and Schools, which determined that ITT "is not in compliance and is unlikely to become in compliance with [ACICS] accreditation criteria." According to the department, ACICS questioned ITT's compliance with standards such as financial stability, management, record keeping, admissions, recruitment standards, retention, job placement and institutional integrity, in an Aug. 17 letter sent to the department. (The letter has not been released publicly.) ACICS held a hearing earlier this month on whether or not to sanction ITT, however, that decision has been placed on hold until after a December hearing. The national accreditor is also facing scrutiny.

Some see the department's move as pushing the for-profit institution one step closer to bankruptcy and closure.

Ben Miller, senior director for postsecondary education at the Center for American Progress, described ITT as a "dead college" and said the department's actions were necessary and appropriate.

"In many ways, this decision further shows ACICS probably should've revoked ITT's accreditation," Miller said. "ITT's closure has felt for a long time like a matter of when, not if, and this is the department showing the courage to step in when ACICS didn't."

In addition to the ban, the department is prohibiting ITT from awarding raises or paying bonuses or severance to the company's executives. The department also increased the company's letter of credit requirement from about $124 million to approximately $247 million, or 40 percent of all federal aid ITT received in 2015.

A letter of credit is collateral the government asks colleges to set aside when officials have concerns that an institution may be unable or unwilling to pay back money it owes the government. The letter also protects students and taxpayers if the institution can't cover federal student aid liabilities. The company will have to provide the letter of credit from a bank ensuring the availability of those funds, which may be difficult. Last year, ITT reported about $850 million in total revenue, with about $580 million coming from federal aid.

The department has also placed ITT on a tighter form of the financial oversight known as heightened cash monitoring, which requires the institution to use its own funds to cover federal aid disbursements for current students. The department would later reimburse those funds after verifying the students.

According to the company's most recent financial filing, it has about $78 million in available cash.

"At this moment, ITT poses a significant risk to students and taxpayers," said U.S. Under Secretary of Education Ted Mitchell in a phone call with reporters. "If you're a current ITT student, you have some options. You can continue your courses at ITT with federal student aid, you can transfer credits to a new school, and you can pause your education and wait to see how this matter resolves. If ITT closes before you finish the program and you don't transfer credits, those students are likely to discharge their loans."

ITT didn't respond to a request for comment.

Although the department is citing ACICS's censure as the driving force behind the increased oversight, Trace Urdan, a research analyst at Credit Suisse, questions if it was instead ITT's decision to cut back on marketing and the company's announcement that new student enrollment could drop by as much as 60 percent that forced the department's hand. The move by ITT could have signaled that they were freeing up cash to satisfy the department or that they were winding down their operations. It was hard to tell the difference, Urdan said, adding that the ACICS censure had been in place for a while but ITT's projected enrollment decrease was new.

Urdan said the department's actions against ITT are a signal to other for-profit institutions with regulatory issues, like DeVry University, for instance, that the department is taking bold actions against the sector.

"There's no one else whose balance sheet is as challenged [as ITT's] among the larger companies, no one in quite the same situation," he said. "But I also read into this a certain level of aggressiveness."

As for ITT, the company did free up some cash by cutting back on marketing, he said, but considering the new financial restrictions placed by the department -- doubling the letter of credit requirements, being placed on the more stringent cash monitoring level, the new enrollment problems, any accreditation disclosures, the negative publicity -- the additional financial restrictions imposed by the department may be too much to handle.

Several state and federal investigations and lawsuits against the company also continue, including lawsuits from the Consumer Financial Protection Bureau and the U.S. Securities and Exchange Commission.

"It definitely makes it very difficult for them to live through this," Urdan said.


Back to Top