On Thursday, the Obama administration banned ITT Technical Institute from enrolling new students who receive federal aid. This may cause the closure of one of the country’s largest for-profit college chains. The reason is federal aid was the source of 68% of the company’s $850 million in revenue last year. Although, ITT can continue to collect aid from its current students–future sources of revenue remain unclear.
The Department of Education (DOE) notified ITT of its decision through a PDF. It was made after two years of overseeing the school’s finances and operations. The ban came after the Accrediting Council for Independent Colleges and Schools (ACICS) stated that ITT was “not in compliance” and “unlikely to become in compliance” with accreditation criteria. This is the list of ACICS’s compliance issues with ITT:
- Institutional integrity
- Management and record-keeping
- Admissions and recruitment standards
- Having enough revenues and assets to meet responsibilities
- Placement, retention and licensure passage rate
As a result, the DOE will not allow ITT to enroll new student to depend on federal financial aid to pay for their education. Since the recession, many private lenders stopped making loans to students at for-profit schools. After the announcement, parent company ITT Educational Services Inc.’s stock lost over a third of its value. Its shares finally ended at $1.40 each.
In addition, ITT is the fifth largest for-profit college chain by revenue. The institution has over 130 campuses in 38 states. Moreover, the DOE has ordered ITT to pay $152 million to the department within 30 days to cover student refunds and liabilities in the event the company closes. In June, the department had demanded $44 million citing the same reason. Furthermore, ITT will not be allowed to give its executives any pay raises or bonuses.
They must also design “teach out” plans to let current students finish their programs at other institutions of it closed its doors. Education Secretary John King said, “It simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal financial aid.”
Last year, ITT enrolled 45,000 students. Plus, ITT is required to increase its reserves from $94.4 million to $247.3 million. In April, the Massachusetts attorney general sued the company claiming it misled students about the quality of its programs.
In 2012, the Senate Committee on Health, Education, Labor and Pensions (HELP), discovered that $32 billion in federal student aid was going to for-profit schools. In 2015, ITT was under a federal fraud investigation. It has also been sued by the Consumer Financial Protection Bureau.
The Obama administration, and the DOE have, increased their investigations on for-profit colleges that have failed students on results they promised to deliver. A few years ago, in 2014, the DOE cut off funding to the Corinthian Colleges chain. It was due to allegations of fraud. After that ruling, Corinthian Colleges had to close or sell all of its schools.