Department of Education Bans ITT Colleges from Federal Student Aid

Posted By Derek Johnson on August 26, 2016 at 1:40 pm
Department of Education Bans ITT Colleges from Federal Student Aid

The Obama administration has turned up the heat once more on low-performing and predatory for-profit universities. The U.S. Department of Education announced Thursday that schools under the troubled for-profit ITT Educational Services will no longer be eligible to accept federal student aid dollars.

In a release announcing the ban, U.S. Undersecretary of Education Ted Mitchell wrote that the decision was the cumulative result of multiple state and federal investigations conducted over the past year and at least two instances where the university was found out of compliance with accreditation standards.

“Over time, ITT’s decisions have put its students and millions of dollars in taxpayer funded federal student aid at risk,” Mitchell said. “These investigations are still ongoing, and last week ITT still failed to address its accreditor’s concerns. In response, today we’re announcing further federal action: To protect prospective students and taxpayers, we’re no longer allowing ITT to enroll new students with federal aid.”

Parent company ITT Educational Services operates six schools and 130 campuses across 38 states. The tens of thousands of students currently attending ITT schools have a variety of options to mitigate harm or disruption to their academic careers. But new students planning to start their first semester this fall at ITT campuses will not be able to take out federal student loans. Mitchell encouraged these students to continue their higher education at other institutions and urged them to use tools such as the College Scorecard to find higher-performing universities with better outcomes.

“If you are a new student who has never been enrolled at ITT in a previous semester, you cannot start classes at ITT in the fall semester of 2016 using federal student aid. I know this is probably a major disappointment and inconvenience, but it’s too risky,” writes Mitchell.

Senator Elizabeth Warren, D-MA, has been a major critic of allowing low-performing schools to receive unfettered access to federal aid dollars. Earlier this year, Warren authored a report that led to the government revoking authority from the Accrediting Council for Independent Colleges and Schools, the agency responsible for overseeing ITT. On Thursday, Warren hailed the department’s decision to cut ITT off from future funding in a Facebook post, saying the university is “cheating students.”

“ITT Tech failed, again, to meet the scandalously low standards of its accrediting agency but still sucked down a whopping $600 million in taxpayer dollars last year,” Warren wrote. “ITT’s free ride is finally over, and the message couldn’t be clearer: We will no longer stand by and allow these shady institutions to bilk taxpayers and cheat students.”

Federal student aid ban is a rare rebuke

The decision to ban ITT Tech’s parent company is notable for several reasons. It is rare for a school to lose access to federal funding at all, let alone in the absence of an official finding of fraud. Still, federal regulators likely took into account the torrent of legal troubles surrounding the university and its partners. Mitchell’s posting said the government’s decision was “based on the operational and financial risk [ITT schools] pose to students and taxpayers.”

The company’s flagship university, ITT Technical Institute, is facing a series of lawsuits from states and the Consumer Financial Protection Bureau over claims of fraud and faulty job placement rates. Last year, the Securities and Exchange Commission filed charges against ITT Educational Services, alleging the company was concealing the company’s poor performance from investors.

That complaint spurred increased scrutiny from the Department of Education, which required the company to provide cash-flow statements every two weeks and give detailed information about the students being enrolled. Under the “Important Consumer Information” section of ITT Tech’s website, it lists a variety of disclosures, including the fact that credits earned at the university are “unlikely to transfer” to other universities and that ITT Tech “does not represent, promise or guarantee that a student or graduate will obtain employment.”

The university and its parent company have yet to comment publicly on the decision. Shares of ITT Educational Services took a big hit, plummeting by 30 percent in the wake of the federal government’s announcement. While the decision does not mean the schools must cease operations, the loss of access to federal aid amounts to a death sentence for most universities.

For-profit schools are particularly reliant on federal dollars as a proportion of their revenue. This dynamic has led to increased scrutiny and criticism during the past few years from higher education and student debt advocates, since the for-profit higher education sector typically provides the lowest outcomes for graduates at the highest costs. Schools under the ITT umbrella were already facing a loss of access after the federal government revoked the authority of its accreditor last month.

Derek Johnson
Derek Johnson is a writer, journalist and editor based out of Virginia. He received a Master’s degree in Public Policy at George Mason University and a bachelor’s degree in Communication from Hofstra University.

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