The for-profit-college industry has been battered over the past decade with allegations of aggressive pricing, ripped-off students, wasted federal aid and low graduation rates taking their toll.
The notoriety surrounding the now-defunct Trump University (which was not actually an accredited college) and the $18 million that former President Bill Clinton was paid as a consultant and “honorary chancellor” of Laureates International Universities have kept the business in the public eye lately in a not-very-flattering way.
Now the U.S. company with the most students and the highest tuition has abruptly shut down after the government last month ordered it to stop enrolling students who receive federal aid. ITT Technical, which claimed on its website to have 45,000 on 130 locations in 38 states, is effectively dead in the water.
A message at the top of the home page says: “We are currently not enrolling new students.”
ITT offered courses in electronics, drafting & design, criminal justice and nursing – and it wasn’t cheap. Tuition costs upwards of $45,000, the highest in the industry. ITT also had the highest rate of default on student loans within the first two years of attendance.
The Wall Street Journal says the school, facing allegations of financial mismanagement and shady recruiting tactics, was being investigated by more than a dozen state and federal agencies including the Consumer Financial Protection Bureau and the Securities & Exchange Commission.
One outcome of the shakeup of the for-profit industry could be a huge tab for taxpayers, The New York Times said, with federal loan forgiveness for students at ITT amounting to as much as $500 million.
In a call yesterday with reporters, Under Secretary of Education Ted Mitchell said the government was acting to protect students and taxpayers. He said he recognized that the news of ITT’s collapse “may cause disruption, confusion, and disappointment to many of ITT's current students. [But] we believe that enabling students to restart or continue their education at a different school will best serve them in the long run….”
In a statement late last month when it announced it was banning ITT from enrolling students using federal financial aid and increasing its oversight, the Education Dept. said that roughly $580 million of the almost $850 million in total revenue that the school reported last year came from federal aid dollars.
ITT Technical is owned by ITT Educational Services Inc., a publicly traded company (NYSE ticker symbol ESI) that until the late 1990s was owned by ITT Corp. As of mid-afternoon in heavy trading, ESI was at 0.36, down from its 52-week high of 4.10.
Despite the heat on ITT, last spring two Chinese investors, Zhifeng Zhang and his son Yude Zhang, bought 2.35 million shares of ESI, or almost 10 percent of the company, for about $5.7 million, according to an SEC filing. The money was paid out of the personal and family funds of the elder Zhang, who was listed as Chair of Guangzhou Huali Investment Ltd, a company that owns and controls several for-profit education schools in China. They held the shares through a company registered in the Cayman Islands, KHLU Ltd.
On Aug. 29 and 30, the Zhangs liquidated their holdings in ESI for a total of just over $1.3 million – about a $4.4 million loss. No one replied to a message left for the younger Zhang at a phone number listed on an SEC filing.
Education Under Secretary Mitchell said yesterday that students enrolled in ITT or those who withdrew in the past 120 days could be eligible to have their federal debt wiped away. Students can also explore transferring their credits to another school. The Education Dept., has set up a hotline (1-800-4-FED-AID) to answer the questions of the tens of thousands of students affected by ITT’s demise.
On ITT’s website this morning, just below the notice that it would enroll no more students, were two words in huge type mocking the dashed dreams of so many: “Endless Possibilities.”