Carmel-based ITT Educational Services Inc., one of the largest operators of for-profit colleges in the nation, has agreed to pay Sallie Mae Corp. $46 million to settle litigation related to a loan agreement between the two parties.
Wall Street reacted unfavorably to the settlement Monday, as ITT shares fell to as low as $15 each in mid-morning trading, shedding as much as 22 percent of their value. The stock traded for more than $66 a share less than 10 months ago.
Reuters reported the settlement Friday, following ITT’s announcement of the agreement in a Dec. 28 regulatory filing.
Sallie Mae, the largest U.S. student loan provider, filed suit against ITT in July 2011, alleging that it breached the terms by failing to pay some amounts on time under the agreement signed in July 2007, according to Reuters.
ITT makes agreements with some lenders, including Sallie Mae, to provide private education loans to its students.
The $46 million payment will be made by Jan. 29, ITT said in the filing. The agreement contains no admission of liability by either party.
ITT said it will record an after-tax charge of $13.2 million, or about 56 cents per share, during the quarter ended Dec. 31.
Analysts were expecting ITT to report a fourth-quarter profit of $1.88 per share, according to Thomson Reuters.
ITT has more than 140 campuses across the country. The average cost of an ITT associate's degree program is $45,000, but scholarships and grants reduce that cost on average to $27,000.
ITT's enrollment figures have been sinking over the past year, mostly because of tougher federal rules involving recruitment.
Most for-profit educators have been suffering similar fortunes. Enrollments have tumbled across the industry, also in part because of a natural receding of the wave of students who entered for-profit colleges during the recession that ran from 2007 to 2009.
But more significantly, government investigations of the industry have exposed questionable recruiting practices, sky-high student debt loads and low graduation rates. New rules placed on for-profit colleges by the Obama administration threatened to yank federal student loans for programs whose students failed to pay down their debt loads.