Obituary: ITT Tech

September 16, 2016

dilley-blog-imageWe have all seen the commercials: people testifying to how ITT Tech enabled them to start a career in the tech industry and how ITT Tech took them from nothing to everything, wrapped up with a promising “education for the future” tagline. At first glance, it is easy to understand why ITT Tech “had more than 40,000 students as of June 30[, 2016]” spread out over their “137 campuses across 39 states.” However, like the Transformers, there is more than meets the eye when it comes to ITT Tech.
In 2014, the Consumer Financial Protection Bureau (CFPB) sued ITT Tech, based on authority from the Dodd-Frank Wall Street Reform and Consumer Protection Act, which enables the CFPB “to take action against institutions engaging in unfair, deceptive, or abusive practices.” The CFPB claimed that, among other things, “the for-profit college chain [was engaged in] predatory student lending,” providing students with misrepresentations regarding post-graduation job prospects, and allowing students to take out high risk loans knowing that “most of its students would default on their . . .  loans.” ITT Tech “projected a default rate for its students of 64 percent.” However, these student loans “provide[d] critical revenue for ITT.” In fact, “[n]early all of ITT’s revenues [came] from tuition, which students [paid] using principally federal and state student loans.”  In 2015 alone, “ITT . . . generated $850 million in revenue, about $580 million of which came from federal student loans” from “programs under Title IV of the Higher Education Act of 1965.”

Richard Cordray, the CFPB director, “believe[d] ITT used high-pressure tactics to push many consumers into expensive loans destined to default.”

This was far from the last legal trouble to strike ITT Tech.
With associate’s degrees costing upwards of $44,000 and bachelor’s degrees costing around $88,000, ITT Tech was one of the most expensive for-profit colleges in the nation. The high tuition cost necessitated student loans, but the federal aid provided to ITT Tech students was not enough to cover the full cost of a degree. As such, students needed additional funding in order to complete their programs. Students were led by ITT Tech to take “high-cost private student loan[s]” which came from the PEAKS and CUSO student loan programs organized by ITT. To encourage loans, “ITT provided guarantees that limited any risk of loss from the student loan pools” that would be triggered if “enough students defaulted” causing ITT to “be responsible for payments to the loan program participants.” These student loans “performed so abysmally . . . that ITT’s guarantee obligations began to balloon.” Instead of informing investors, ITT concealed the condition of the student loan programs and ITT’s guarantee obligations” through “numerous misstatements and omissions” in addition to “deceptive acts.” This conduct led to the Securities and Exchange Commission (“SEC”) charging ITT Tech and two of its executives with fraud in 2015.
In late 2015, the Education Department began tightening its watch of ITT Tech with “stricter financial oversight and reporting requirements on the embattled for-profit chain.” The Accrediting Council for Independent Colleges and Schools (ACICS) also began to turn up the heat on ITT Tech in April of this year by “order[ing] ITT Tech[] to prove why it shouldn’t lose its accreditation or otherwise be sanctioned.” Both the Education Department and ACICS pointed to the CFPB and SEC actions against ITT Tech in their reasoning for vigilantly watching ITT Tech. Eventually, the Education Department ordered ITT Tech to increase its letter of credit, which is “collateral the government asks colleges to set aside when officials have concerns that an institution may be unable or unwilling to pay back money it owes to the government,” from $79 million to over $123 million in June of this year. This massive increase in letter of credit was aptly referred to as a “deathblow to ITT.”
On September 6, ITT Tech announced that it was closing all of its campuses. In the press release regarding its closure, ITT Tech said that the increase in letter of credit “forced [ITT Tech] to conclude that [it] can no longer continue to operate . . . ITT Tech campuses and provide students with the quality of education they expect and deserve.” ITT Tech went on to refer to ACICS and the Education Department’s actions as “unwarranted . . . taken without proving a single allegation” calling “the government’s action . . . inappropriate and unconstitutional.”
ITT Tech highlighted that it “has helped hundreds of thousands of . . . students improve their lives through career-focused technical education.” For better or worse, however, ITT Tech is no longer an option for prospective students interested in a career in technology.