This morning, one of the nation's biggest for-profit colleges, ITT Tech, announced that it has permanently shut down its academic operations and fired the "overwhelming majority" of its more than 8,000 employees. In a typically self-pitying, remorseless statement, the company blamed all its woes on the U.S. Department of Education, which, ITT claimed, acted with "a complete disregard ... for due process to the company."
On August 25, the Education Department, citing a range of questionable business practices by ITT, banned the company from enrolling new students using federal grants and loans. Given ITT's overwhelming dependence on federal student aid, that decision essentially amounted to a death sentence.
Here are some things you should know:
1. ITT is responsible for and deserved its demise. ITT, which has been getting as much as $1.1 billion annually in taxpayer funds, and got $664 million last year, has for years engaged in predatory and reckless practices -- coercive and deceptive recruiting, unconscionable student loan practices, financial aid abuses, poor quality programs but sky-high tuition, alleged fraud on investors, and much more. For its bad behavior, ITT has been under investigation or sued by the Securities and Exchange Commission, the Consumer Financial Protection Bureau, and the attorneys general of New Mexico, Arkansas, Arizona, Connecticut, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania and Washington.
2. ITT demonstrated until the end that it was primarily a call center, not a college. Market analysts at the firms PiperJaffray and Credit Suisse, like ITT, sought to blame the feds, with PiperJaffray telling investors that the Education Department was showing "minimal concern for 40,000 ITT students that will be displaced." But after the Department issued the cutoff of federal aid, ITT engaged in some shocking passive-aggressive behavior that revealed the company's own indifference to its students: ITT wiped clean its homepage, and reduced it to a single statement: "We are not enrolling new students." This was an odd display for a school that still had perhaps 35,000 students enrolled. (The next day, ITT wised up a bit, adding four words of acknowledgement that it was still in charge of a school.)
3. The Department of Education is finally stepping up to protect students and taxpayers. For years the Department of Education has allowed blatant abuses by for-profit colleges to go on. Senator Tom Harkin's blistering report on the egregious practices of ITT and other companies was issued more than four years ago, yet the Department has continued to send billions to these institutions.
One critical change is that, in the wake of the collapse of the awful predatory Corinthian Colleges, the Department has moved toward issuing new regulations to implement a long-ignored law that gives students who were defrauded the right to have their federal loans cancelled. Now that we are about to move into this defense-to-repayment era, I think the Department sees there will be much greater costs to bestowing its Good Housekeeping seal on predatory schools by making them eligible for federal aid. So it sees more urgency in cutting off bad actors. That is good news.
Under Secretary of Education Ted Mitchell told reporters on a conference call a few minutes ago that "over time" it became "irresponsible for us" to allow ITT to enroll new students.
Today, when you hear experts, especially those seeking to blame the Department, talk about the costs of an ITT shutdown, please keep in mind that even if ITT stayed in business, former students could still apply for loan discharges on the ground that the company defrauded them. By acting now, the Department has finally stopped the bleeding, stopped the enrollment of thousands more students whose woes would only compound the tragedy and the costs here.
4. The Department of Education has the chance to avoid repeating its Corinthian mistakes. Last year, the Department of Education wisely took steps that resulted in the demise of Corinthian, which, like ITT, was almost entirely a creature of government aid. But the Department made some major missteps in the aftermath, including approving the sale of many Corinthian campuses to ECMC, a debt collection company with no experience running colleges, and which hired many former Corinthian staff and has engaged in some of the same predatory behavior. The Department also acquiesced in efforts by Corinthian, fearful that many students would demand loan forgiveness, to steer students to transfer to other predatory, low-quality for-profit schools.
This time it can be different. Various suitors have considered taking over ITT's operations, from the University of Akron to a long-time for-profit college entrepreneur who called me over the summer to sound me out. Although there are some fine instructors and staff at ITT campuses who have tried to do the right thing for students, and it is a tragedy that good people will lose their jobs, the better course for students and taxpayers would be to avoid a repeat of the Corinthian error, and instead offer students new places to learn.
Some community college systems already are stepping up to engage with former ITT students, and leadership by governors and the Department of Education in steering students to better quality programs also could make a big difference. Under Secretary Mitchell told reporters on the conference call that the Department was engaging actively with states and community colleges to find new places for ITT students to learn.
One reporter told Mitchell that ITT CEO Kevin Modany had said to reporters this morning that the Department had rejected several efforts by ITT to be acquired. Mitchell said that while ITT had been in conversations with some prospective buyers, there was never a formal sale proposal for the Department to consider or reject. He added that the failure to find a buyer, or at least a buyer acceptable to the Department, might have been "further evidence of problems that ITT had in delivering high quality instruction to its students."
The Department also can avoid what it has sometimes done in the past: trying to change the subject when students ask for loan discharges because their school has closed or engaged in fraud. Instead, the Department should make it easier to get these loans forgiven. It looks like the Department may be moving in this direction. (Mitchell said today that if every eligible student applied for a closed school loan discharge, the total cost would be $500 million, and that the Department has compelled ITT to put up $90 million to reimburse taxpayers for events like this.)
The Department also should be moving to prevent executives of predatory schools from looting their companies as they fail -- to restrict stock buybacks and excessive executive compensation when schools are not in full compliance with regulations (as it did last month with ITT).
5. Big Washington players enabled ITT's bad behavior. Washington lobbyist Vin Weber, a former member of the House GOP leadership and still a big Republican power player, has served for 22 years on ITT's board of directors. The modern GOP is supposed to stand for lean, limited, honest government. WTF has Weber been doing validating ITT's waste, fraud, and abuse with taxpayer dollars? Powerhouse DC law and lobbying firms like Gibson Dunn, Thompson Coburn, Dickstein Shapiro, Cooley, and Lanny Davis also have been hired to push ITT's interests in legal and regulatory fights.
6. Other for-profit college companies are still in business and abusing students and taxpayers -- to the tune of billions of dollars annually. These include industry giants like the University of Phoenix, EDMC, Career Education Corporation, Kaplan, and Bridgepoint, as well as a slew of smaller enterprises. In recent years, the Department of Education and law enforcement agencies have taken a wide range of actions to address the abuses. But much more needs to be done, and urgently.
This article also appears on Republic Report.