For-Profit ITT Tech College Chain Targeted By Feds, School Banned From Federal Financial Aid

The federal government has banned ITT Technical Institute from accepting students who use federal financial aid to pay tuition at the for-profit college chain in what may be a death sentence for the university.

Officials at the Department of Education announced the ban on federal financial aid Thursday amid an ongoing investigation into the for-profit college’s recruiting and accounting practices.

This month, an accrediting agency found the for-profit ITT chain failed to meet basic standards and was unlikely to comply in the future. Now, the college has been ordered to pay back $152 million in federal funds within 30 days, reports the Los Angeles Times.

The money will be used to cover student refunds in case the college chain shuts down, and that’s in addition to the $44 million the government has already demanded, Education Secretary John King told the Indy Star.

“Looking at all of the risk factors, it’s clear that we need increased financial protection and that 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 student aid funds.”

Shares of ITT Educational Services were down 35 percent to $1.40 Thursday as news of the ban on federal financial aid broke. The chain has also been banned from paying out bonuses, raises, or severance payments to executives without approval from the federal government, Trace Urdan, at Credit Suisse, told the Washington Post.

“It’s pretty bad. ITT had already announced that they were cutting back on marketing and that new student enrollment was down, so they were already marching in this direction. But this decision, when you add all of the components together, it looks like the department wants them to go out of business.”

ITT Tech opens down 50% from yesterday's close in wake of Department of Ed crackdown. pic.twitter.com/5sGg7GHBKY

— Angus Johnston (@studentactivism) August 26, 2016

The ITT for-profit college chain operates more than 137 campuses across 39 states serving 45,000 students in the business, nursing, and information technology industries with reported revenue of $850 million.

The federal government has offered assurances that current students will be taken care of, and they’ve instructed the university to prepare “teach-out” plans enabling students to continue their education at other colleges if the chain shuts down.

If the for-profit college chain shuts down before current students can complete their education, they will most likely be able to have their federal loans discharged, Under Secretary Ted Mitchell told the Indy Star.

The chain is also facing legal action from the Securities and Exchange Commission and the Consumer Financial Protection Bureau.

The Decline of the For-Profit University: Once heralded as the next step in the evolutio… https://t.co/8WokOXNURN via @CollegeInvestin

— Everything Finance (@AllFinance) August 26, 2016

ITT’s ban on federal financial aid comes amid a crackdown by the Obama administration on for-profit colleges that forced Corinthian colleges to close its 28 campuses last year. The Department of Education has been investigating colleges that have failed to fulfill promises made to students or misled applicants interested in their programs.

The for-profit college industry has been facing dwindling student enrollment, and that includes ITT, which has seen total enrollment drop by 16 percent. The college chain told investors it expects to lose another 60 percent of its students compared to last year.

ITT has spent the last two years mired in investigations into its marketing tactics and use of predatory loans to lure students in. More than a dozen state attorneys general and two federal agencies are investigating the for-profit college chain, Terry W. Hartle, from the American Council on Education, told the Washington Post.

“It is unprecedented for the department to take this action such a large educational institution. ITT is a deeply troubled network of schools, so this does not come completely out of the blue.”

What do you think about Obama’s crackdown on for-profit college and ITT’s ban on federal financial aid?

[Photo by Mario Tama/Getty Images]