ITT Tech, one of the nation’s largest chains of for-profit colleges, announced Tuesday that it is shutting down – exactly 12 days after the Education Department banned the company from enrolling new students using federal student aid.
“The actions of and sanctions from the U.S. Department of Education have forced us to cease operations of the ITT Technical Institutes,” said the parent company, ITT Educational Services, in a statement, adding that it had “exhausted the exploration of alternatives, including transfer of the schools to a non-profit or public institution.”
The Indiana-based company said that the Education Department’s actions were “inappropriate and unconstitutional.” The closure displaces more than 40,000 students who currently attend the school. More than 8,000 ITT Tech employees are now without a job, according to the company.
The unraveling began in May 2015:
Five years after noted short-seller Steve Eisman told Congress that for-profit education was a ticking time bomb — like subprime mortgages — the nation’s top securities regulator has taken action.
The Securities and Exchange Commission on Tuesday filed fraud charges against the two top execs at for-profit college ITT Educational Services. The SEC fraud charges are the latest in a series of crackdowns on the industry, which Eisman exposed as preying on low-income students while saddling them with huge debt and worthless degrees.
When ITT’s low-income students could no longer get private loans, the company created two off-balance-sheet trust vehicles and raised $441 million from investors. That was used to make loans to ITT’s students. ITT guaranteed to make the payments if enough students defaulted.
But as student defaults rose, ITT secretly made payments on the loans into the trust, saving the company “tens of millions of dollars” in guarantees while papering over the real default rate, the SEC alleged. CEO Kevin Modany and CFO Daniel Fitzpatrick masterminded the fraud, the SEC charged.
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The swift closure of all of its campuses should indicate exactly how far the company went to recruit students using federal aid. Of course, there’s nothing wrong with providing federal loans to students who are seeking higher education, but ITT Tech often went a step further: The company’s recruiters preyed on students who didn’t understand the lifelong burden of debt and shouldn’t have been seeking a technical degree.
A report from The Atlantic recently revealed that “students pursuing bachelor’s and associate’s degrees at for-profit colleges saw their earnings drop, compared to before they started the program.” The reason is because students at for-profit colleges are less likely to finish their degrees, have a higher risk of living in poverty, and students often become burdened by debt without learning any new technical skills.
Under federal law, current students and recent dropouts of colleges that have gone out of business are no longer liable for their loans. That leaves the public to pick up the tab estimated at $485M.