ITT Technical Institute, a for-profit college with campuses across the United States, is accused of misleading its students with a deceptive student loan program and empty promises. In an odd turn of events, two Chinese investors have bought substantial shares in the college, which appears to be on the verge of shuttering its doors.
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. And ITT is the latest to face such problems.
Founded in 1946, ITT provides technology-oriented undergraduate and graduate degree programs. It is owned by a publicly traded company, ITT Educational Services Inc. (NYSE: ESI) and serves roughly 40,000 students at more than 130 campuses in 39 states and online.
ITT’s tuition for a bachelor’s degree can cost nearly $88,000, which is 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 high tuition costs.
“I know many ITT Tech students are suffering massively. The student loans have ruined our lives. We are stuck with these student loans,” said Niki Howland, who graduated from ITT in 2004 and since then has been struggling to pay her federal and private student loans.
After the collapse of the private student loan market, ITT created its own private loan programs called PEAKS and CUSO, which provided off-balance sheet, high-interest loans to ITT students. To encourage investors to finance these loans, the company provided a guarantee to limit the risks.
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.
ITT first came under fire in 2012 when news first emerged of the high default rate on its student loans. Since then, the company’s stock crashed from $75 to $2.20 per share.
The company had to pay tens of millions of dollars in guarantees without proper disclosure to investors. These actions led to federal and state investigations and lawsuits against the company.
The CFPB filed a lawsuit against ITT in 2014 accusing the company of predatory lending, pushing students into taking out high risk loans.
The following year, the U.S. Securities and Exchange Commission (SEC) announced fraud charges against ITT and its CEO and CFO. The institute is also under investigation by several state attorneys general for possible violations of consumer protection laws, due to its shady marketing and recruiting practices.
ITT has denied all and stated that they are defending themselves “vigorously against the allegations made in the complaints,” in its most recent quarterly report filed with the SEC.
ITT Tech Warriors
Student complaints are also mounting. They accuse the company of deceiving students during the enrollment process and misrepresenting the school’s accreditation.
In 2015, a group of current and former students created a group called ITT Tech Warriors on social media to fight for debt relief and raise awareness about what they said was fraud. The group, which has more than 2,000 members, calls itself “victims of the predatory college.”
“I was trying to find other students like me, finally, I joined the ITT Tech Warriors group. Since then we have grown our group, our cause against ITT,” said Howland, who could not get a job in her field after graduating in 2004.
The CFPB has accused ITT of using aggressive recruiting tactics in order to maximize student enrollment and company revenue. The college chain is alleged to have paid the recruiters by commission and pushed them to do whatever they could to fill the classrooms. Students also say the school recruited individuals who were not the right fit for college-level education.
“It’s no secret that this school is a complete joke; thriving on mostly low-income students and their financial aid money. … All of the students I enrolled who had previously gone to traditional colleges ultimately dropped out of ITT after one-quarter, citing the horrible curricula and inability to overcome the rowdy classroom atmosphere,” stated a former ITT admissions representative who worked for three years at a Southern California campus on a blog.
Some students also claim they were misled by the school since ITT promised them their programs were accredited and the credits earned would be transferable to other academic institutions.
“I was angry that I'd spent all this money in student loans and it turns out that the degree, if I would have finished there, would have been pretty much worthless,” U.S. Marine and combat veteran Bryan Babcock told NBC 10.
Students also complain about the school’s false promises regarding employment prospects.
“ITT’s representations led students to think that when they graduated they were likely to land good jobs and enough salary to repay their private student loans. In this way, ITT exploited student expectations while it knew that a majority of students would default,” said CFPB in its press release.
ITT Tech really has opened up many opportunities for me. I can finally land a job at my local fast food restaurant. Thanks ITT Tech.
— Setu (@setuchainz) July 27, 2016
“It is mind boggling how corrupt ITT-Tech is. Being part of this organization is like being in a cult. The mission statement, the mottos, with-holding information from students, the constant demand for more money from students, it is downright creepy,” stated an ITT Tech former teacher from Washington State on layoff.com website.
She told Epoch Times that everyone including regulators, students, and teachers seem to be on the same page about the alleged frauds of ITT. “I think eventually these schools will be shut down,” she said.
Financial Meltdown?
The company announced its second quarter results on July 28. The revenue and student enrollment dropped by 17.7 percent and 21.6 percent year-on-year, respectively. The company is expecting a 45 percent to 60 percent reduction in new enrollments in 2016 as a result of the changes to its marketing and recruitment practices.
In another SEC filing on July 6, the company announced that it would increase guarantees to the U.S. Department of Education from 10 percent to 20 percent of the company’s annual student aid funding. Department of Education demanded higher guarantees due to rising concerns regarding ITT’s management and financial sustainability.
In order to meet this demand, the company announced that it would make changes to its marketing and recruitment strategy to raise additional funds. As a result, ITT reduced the headcount significantly. The company runs operations with “fewer recruitment personnel at local campuses, in favor of structuring the workforce centrally,” said Nicole Elam, spokeswoman for ITT Educational Services.
According to media reports, the Accrediting Council for Independent Colleges and Schools (ACICS) may be shut down, and ITT’s accreditation may be revoked. The accrediting agency was under scrutiny for giving accreditation to many controversial for-profit colleges including ITT, and Corinthian Colleges, which went bankrupt last year.
Without accreditation, ITT’s students would not be eligible for federal student aid.
Despite all these troubles, two major shareholders Zhifeng Zhang and Yude Zhang bought more than 600,000 shares in ITT Educational Services in July. Each investor now holds 13 percent of the company. Investors could not be reached for comment. Their intentions on purchasing the stock are not clear.
For-Profit Education Troubles
ITT Educational Services is not a unique case in the for-profit education industry. Other major for-profit education companies, including Career Education Corporation and Education Management Corporation, face investigations and lawsuits as well.
In May 2015, Corinthian Colleges, once the second-largest for-profit chain in the United States, went bankrupt and closed all campuses after students declared a debt strike and refused to pay federal student loans.
For-profit colleges started to boom in the 1990s driven by soaring student loans. The schools encouraged students to take out as much financial aid as possible.
However, the sector faced tougher regulations after the government investigations started in 2010. The companies were accused of inflating job placement rates, pushing students into private loans, and failing to disclose losses to investors.
“Underneath all of these stories is a much longer and larger saga of political and financial intrigue and the partial collapse of U.S. higher education, something that started several years ago and that will likely continue,” said Dahn Shaulis, an education activist defending the rights of for-profit college students.
