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ITT Tech Latest To Come Under Government Scrutiny

The Lyndon B. Johnson Building, headquarters of the United States Department of Education in Washington, D.C. (Photo: Wikimedia Commons by Coolcaesar)
The Lyndon B. Johnson Building, headquarters of the United States Department of Education in Washington, D.C. (Photo: Wikimedia Commons by Coolcaesar)

You may have heard that the government taking action against ITT Technical Institute, a nationwide chain of for-profit technical schools, the question is should you be worried? That answer is, of course, a difficult one but we will attempt to explain the situation here.

What is the Government Doing?

On Thursday August 25, the government banned ITT Tech from enrolling new students who use financial aid from the Department of Education. This DOES NOT affect GI Bill students, it only affects those who use Pell Grants and Federal Student Loans. Current students will not be affected, they are still eligible for federal grants and loans.

The next day, California imposed a separate ban on new enrollments at 15 ITT Tech locations in that state. This ban will affect ALL NEW enrollments effective September 1. New students paying with cash or GI Bill funds will also be prevented from enrolling in any classes at ITT Tech in California after that date. Existing students are not affected.

Why Did the Government Take This Action?

ITT Tech has been in the crossshairs of several state and federal investigations in recent years.

The federal government has been investigating ITT since 2014 when they alleged that some school employees persuaded students to take out high-interest private loans, often with high risk of default and high rates of interest, when their federal loans failed to cover all of their costs. In 2015, the Securities and Exchange Commission charged two top ITT executives with lying to investors in an alleged scheme to cover up losses, also, in 2015 California temporarily suspended enrollments at the school citing paperwork and administrative recordkeeping shortfalls. Earlier this year Massachusetts sued the school for overstating the success of its programs and presenting false information to potential students. The lawsuit alleged that ITT told prospective students that 100% of graduates obtained jobs in their related field of study, though the actual rate of placement was only 50% or less.

Just recently the Department of Education noted that an accrediting agency may revoke ITT's accreditation, essentially a killing blow to any school. Usually accrediting is done by nongovernmental agencies which conduct peer evaluations to ensure schools meet federal and state mandated quality, financial, and recordkeeping requirements. Accreditation is almost always necessary for a school to enroll GI Bill students.

Also ITT's enrollment has been falling dramatically for years now and will continue to do so according to the school itself. In a June 2016 SEC filing ITT estimated that new enrollments in 2016 will be nearly 60% less than they were in 2015.

Based on the ongoing investigations, threat of accreditation withdrawal, and financial weakness the government has placed ITT Tech on what is known as "Heightened Cash Monitoring" which is basically very strict oversight to prevent any possible loss to taxpayers in case the school closes.

What Exactly Was The Action Taken By The Government?

Taking all these factors into consideration, the Department of Education basically told ITT that they must post an additional $150 million cash or a letter of credit from a financial institution as an insurance policy with the government in case the school ends up closing. This would help to lessen the effect on taxpayers if thousands of ITT students suddenly defaulted on their student loans due to the school's closing. The school must also develop "teach-out agreements” - arrangements that identify other schools where students can continue their education programs if that becomes necessary due to ITT closing.

I'm a Student at ITT Tech, What Should I Do?

Well, that depends, of course we don't have a crystal ball handy right now, but here are the facts: ITT Tech has 45,000 students enrolled on its 138 campuses nationwide, of those 45,000, over 5,000 are veterans. That means a lot of federal money is going into those schools, if the government cracks down harder ITT may be in for tough times. Of course, GI Bill money and Department of Education money are two different things, under current regulations, getting GI Bill money shut off to an accredited school would literally take an act of Congress.

ITT's cash flow has been dropping by nearly $100 million a year for the last 5 years, their enrollment has also been going down every year for those last 5 years. After Thursday's announcement their stock dropped over 60% in one day.

While ITT is one of the biggest chains of for-profit schools in the nation and it has been taking actions to improve its recruiting and financial issues for some time now, some may see similarities between ITT Tech and Corinthian Colleges. Corinthian was a for-profit chain that went out of business and shut down its 28 locations last year after being fined $30 million by the federal government.

Some say that ITT's situation is totally different, they are much larger and better off financially, and they are not being fined, just required to have more money, or a letter of credit, on hand with the government.

If you are close to completing your program with ITT, you may be fine to stay where you are and see it through. If you are risk-averse or just beginning your education, you may want to investigate further before making up your mind. Either way, being aware of the situation and your options is always a good thing.

 

 
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