ITT Educational Services Inc. announced on Sept. 6 it would cease academic operations at all ITT Technical Institutes permanently, affecting more than 8,000 jobs.
The announcement came after the U.S. Department of Education on Aug. 25 banned ITT Tech from enrolling new students with federal loans. The department’s announcement was a major blow to the company, as nearly 70 percent of its revenue came from federal aid dollars last year.
“We believe the government’s action was inappropriate and unconstitutional,” said the company in a press release.
ITT Educational Services (NYSE: ESI) was a publicly traded company that owns ITT Tech Institute, which comprises more than 130 campuses in 38 states. Founded in 1946, the for-profit college chain was offering technology-oriented undergraduate and graduate degree programs and had nearly 45,000 students in 2015.
The New York Stock Exchange suspended trading of ESI stocks on Sept. 6 and announced that it will apply to the U.S. Securities and Exchange Commission (SEC) to delist the stock.
The Department of Education announced earlier they had to take a strong measure against ITT to protect students and taxpayers.
“Millions of dollars in taxpayer money and tens of thousands of students are in jeopardy,” said Undersecretary of Education Ted Mitchell on a press call on Aug. 25.
In order to increase financial protection, the department asked ITT to pay $152 million in additional guarantees within 30 days to cover student refunds. However, ITT had only $78 million in cash left, according to its most recent quarterly filing.
Allegations Against ITT
ITT is not a unique case. The for-profit education sector in the United States, once a high-flier, has been struggling with lawsuits, financial crises, and government scrutiny since 2010.
Corinthian Colleges, once the second-largest for-profit chain in the United States, went bankrupt and closed all campuses in May 2015, after students declared a debt strike and refused to pay back federal student loans.
A recent Wall Street Journal editorial blamed the Obama government for putting ITT and other for-profit colleges out of business.
“When the feds killed Corinthian Colleges in 2014, they triggered a chaotic collapse that has resulted in more than $170 million in student debt relief. Taxpayers may get a similar bill for ITT,” the newspaper stated.
However, the article fails to explain the allegations against ITT.
In recent years, the company has been the subject of numerous state and federal investigations, as well as lawsuits.
ITT first came under fire in 2012 when news of the high default rate on its student loans emerged. It has been accused of pushing students into high-risk loans.
ITT’s tuition for a bachelor’s degree could cost nearly $88,000, among the highest in the sector, according to the Consumer Financial Protection Bureau (CFPB). Most students rely on federal aid or private student loans to cover the tuition costs.
However, poor job opportunities for graduates, combined with their mounting student debts, led to a high rate of default. Investors were left in the dark about the escalating problems. In 2015, the SEC announced fraud charges against ITT, its CEO, and its CFO.
ESI stock crashed from $75 in 2012 to $0.36 per share as of Sept. 2.
Current and former students also accuse the company of deceiving them during the enrollment process and misrepresenting the school’s accreditation. They complain about the school’s false promises regarding employment prospects.
However, students cannot file lawsuits against ITT—they were required to sign an arbitration clause when they enrolled in the school.
In light of recent developments, students now want all their debts to be canceled, and they are using social media to raise their voices. One Facebook group, ITT Tech Warriors, has nearly 3,700 members.
“We must show them we will not go silently into the night and accept the debt, lies, and deceit,” one group member wrote.
The Department of Education recently posted an article on its blog to answer current and former ITT students’ questions and announce the procedures for discharging federal loans.
In a letter to ITT students posted on the blog on Sept. 6, U.S. Secretary of Education John B. King Jr. said: “We made a difficult choice to pursue additional oversight in order to protect you, other students, and taxpayers from potentially worse educational and financial damage in the future if ITT was allowed to continue operating without increased oversight and assurances to better serve students.”
A Fight for Debt Relief
Andrew Havens, a graduate of ITT Tech from Albuquerque, N.M., is a member of the ITT Tech Warriors Facebook group fighting for debt relief.
Following the announcement of the institutes’ closure, Havens said: “I was expecting this kind of news. However, it is bittersweet, because a lot of innocent people work there. Now they have been pulled down with this mess as well.
“It’s the end of one abomination. And it’s like the end of a battle.”
Havens graduated from a four-year criminal justice program at ITT Tech in 2012.
“What goes on in ITT Tech is extremely predatory,” he said referring to ITT’s aggressive lending tactics, which affected many students like him.
It was not until graduation that he learned he had a private student loan of $20,000, with an $11,000 principal and a 16.75 percent annual interest rate.
He said ITT Tech charged him for services he had never used, such as food and housing, as well as other debt fees he was never informed about. He has been battling with the school to sort out his private loan balance since graduation.
“I wanted to be a police officer, I failed because of my credit score,” he said.
His case pushed the state attorney general to pursue a further investigation of ITT Tech. He also advised 30 classmates who suffered from the same problem.
“When we all walk through the burnt ashes and mangled ruins, we look around and say, Was it worth it? Could this have been prevented?” he asked.
“But our cause is far from over. We will fight for others until we are all free from these debt burdens.”