ITT Tech Handed 'Death Sentence' By Federal Government

| by Nik Bonopartis
Students celebrate graduationStudents celebrate graduation

The Obama administration's crackdown on for-profit universities could soon claim a new victim: Indiana-based ITT Technical Institute, more commonly known as ITT Tech.

The embattled school network is the nation's largest for-profit college, with 43,000 students currently enrolled and 137 campuses operating in 39 states, according to the Indianapolis Star.

But ITT Tech is the subject of several federal and state-level investigations, has been accused of mismanaging its finances, and allegedly provides a poor education to students who, on average, struggle to find jobs and pay back their student loans, The Wall Street Journal reported.

Sixty-eight percent of the college's revenue comes from federal student loans, per the IndyStar -- $580 million of ITT's $850 million in revenue earned in 2015 came by way of the federal government.

But on August 25 the federal government cut off federal loans to ITT Tech, and banned it from enrolling new students who receive federal loans or grants.

Analysts told the IndyStar that they don't expect ITT Tech to survive, not only because the federal government has removed the for-profit college's major revenue source, but also because the federal government is demanding that ITT posts $153 million in cash reserves -- in addition to the $94 million the college network has already posted -- to guarantee that it can reimburse students and the federal government if the company fails, The Wall Street Journal reported.

Alexander Paris, an analyst for Barrington Research Associates, told the IndyStar that the order is "certain to bankrupt this company" and said going without revenue from federal loans is a "death sentence."

Regarding the cash reserves demanded by the government, Paris said: "I don't see how it's remotely possible they could come up with that much money in that short of time."

Ted Mitchell, the Education Department’s undersecretary, said the federal government did not have a choice.

“Millions of dollars in taxpayer money and tens of thousands of students are in jeopardy,” Mitchell said. “We have both a legal and ethical responsibility to strengthen safeguards in accordance with the public’s trust.”

The Journal noted similarities to last year's bankruptcy by for-profit chain Corinthian Colleges Inc., which was also banned from accepting new students using federal loans. In that case, Corinthian was accused of exaggerating the career successes of its students, the newspaper reported.

Like Corinthian, ITT Tech allegedly employed questionable recruiting tactics, the government alleges.

ITT did not respond to requests for comment from several media outlets. Trace Urdan, a Credit Suisse analyst who tracks for-profit colleges, also told the Journal he does not expect the chain to survive.

“It’s going to be very, very difficult," he said, "for them to get through this."

Sources: Indianapolis Star, The Wall Street Journal / Photo credit: Jebulon/Wikimedia Commons

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