For-profit college banned from accepting students with federal aid

ITT Technical Institute, a for-profit chain of colleges with more 40,000 students, was dealt a severe blow from the US government on Thursday.

Officials from the US Department of Education announced that the vocational institute could no longer enroll students that had access to federal financial aid. ITT, which depends on such students for a large portion of its revenue, has been under investigation for months for its accounting and recruiting practices.

The move by the government against ITT Tech is only the latest in a number of measures instituted over the past few years targeting for-profit schools.

According to the Associated Press, the Department of Education announced a series of measures against ITT, including an order to pay $152 million to cover student funds and liabilities within 30 days if the chain of colleges should close. The department also prohibited ITT from awarding pay raises or bonuses to its executives.

The new government orders have prompted speculation that the end is near for the company. According to The Washington Post, the news of the department's injunctions caused shares of ITT to drop to an all-time low, plummeting by 35 percent in a single day.

“It’s pretty bad,” Trace Urdan, a research analyst at Credit Suisse, told The Washington Post. “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.”

The Department of Education's move is part of the Obama administration's crackdown on for-profit educational institutions in the United States, of which ITT Educational Services is one of the largest. As the Monitor previously reported, many critics of for-profit colleges cite misleading and aggressive recruitment, poor graduation rates, and high-interest loans given to low-income students as evidence that for-profit colleges are "predatory" institutions that hurt students.

This isn't the first time ITT Tech in particular has come under scrutiny. As the Monitor reported in April, Massachusetts Attorney General Maura Healey filed a lawsuit against the institution for presenting false claims to prospective students.

“These students were exploited and pressured to enroll with the promise of great careers and high salaries, but were instead left unable to repay their loans and support their families,” Ms. Healey said in an April press release. “Our office has a history of going after predatory for-profit schools and will not stand for students in Massachusetts being treated simply as a source of income. We will continue to investigate and act against these deceptive practices and work hard to get the relief these students deserve.”

The basis for the lawsuit was a claim by ITT that 80-100 percent of graduates obtained jobs in their related field of study. But the actual rate between 2010 and 2013 was 50 percent or less.

The new orders from the Department of Education are even more damaging than the lawsuit. ITT specifically targets low-income students that require federal aid, and losing those students would be a huge drop in already-declining enrollment. The Washington Post notes that the company has closed 10 locations in the last two years, and enrollment was expected to drop as much as 60 percent from 2015 even before the government's Thursday announcement.

According to Homeroom, the official blog of the US Department of Education, the for-profit college has "put its students and millions of dollars in taxpayer funded federal student aid at risk." Current students receiving federal financial aid may continue to attend ITT if the school remains open, but new students who have not started classes yet will not be able to receive financial aid. The page also suggests that those worried about the future of ITT might consider transferring to a different school. But ITT's own site includes a disclaimer that credits earned at the school will likely not transfer to other institutions.

If the school does close, students will be entitled to federal loan forgiveness, which should help a large portion of the student body. But a closing would still leave many in a difficult position with an incomplete degree and untransferable credits. According to Education Secretary John B. King, Jr., however, the government action had to be taken.

“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 aid funds,” said Mr. King, according to The Washington Post. “We will do everything in our power to ensure that current ITT students don’t shoulder the burden of the school’s bad behavior.”  To this end, the Education Department is requiring ITT to create “teach-out” plans that would help current students finish their education at other colleges in the event of closure, according to the Los Angeles Times.

The problems with ITT are not unique. For-profit schools around the country have received similar injunctions from federal and state governments. In 2014, the department cut off federal aid to Corinthian Colleges, another for-profit chain, which forced the company to close or sell off all of its schools. On Friday, the Department of Consumer Affairs’ Bureau for Private Postsecondary Education in California banned ITT from accepting new students altogether, and is seeking to revoke the chain's approval to operate in the state, according to the Los Angeles Times.

Even if ITT decides to keep its doors open, the school is also in danger of having its accreditation revoked by the Accrediting Council for Independent Colleges and Schools, which would ensure the school's closure. And if the end is near for ITT, other for-profit colleges are likely to follow.