ITT Educational Services Inc. stock plunged more than 31 percent Thursday morning after the company announced that it spent an extra $43.7 million in the first quarter to cover mounting losses on private student-loan programs it launched during the recession.
And the losses could get much worse.
The Carmel-based operator of for-profit colleges estimated it could pay nearly $228 million more by 2020 to cover losses on the private loan programs.
Shares fell to as low as $17.75 each Thursday morning before bouncing back a bit later in the day. The stock closed at $20.50, down 20.5 percent on the day.
In January, ITT Educational reported that it had set aside a total of $127 million to cover losses on the loan programs. They were started in 2009 and 2010 by credit unions, including the Eli Lilly Federal Credit Union, which suffered a loss in 2012 because of the program.
The programs lent more than $420 million to help students cover the cost of an ITT education that exceeded the amounts allowed by federal student loans.
Student default rates have reached 64 percent in the program, creating a big headache for ITT executives on several fronts.
The U.S. Consumer Financial Protection Bureau focused on the student loan programs in a February lawsuit it filed against ITT, accusing the company of predatory lending practices. ITT has sharply criticized the claims in the lawsuit and asked a federal judge to dismiss it.
Also, ITT Educational has so far kept the loan programs off its balance sheet, but it is now talking with the U.S. Securities & Exchange Commission to determine if it needs to reverse that decision.
That unresolved issue has delayed an audit of ITT's 2013 financial results and caused the company not to report complete first-quarter earnings information Thursday morning, as it was scheduled to do.
Instead, ITT announced some of its operating results from the first quarter.
After three straight quarters of rising enrollment of new students, ITT Educational saw new-student enrollment drop in the first quarter. It was down 3.8 percent compared with the same quarter of 2013, to 16,746.
Overall, ITT enrollment fell 6.4 percent from the end of the first quarter last year, to 57,125.
More positively, ITT’s employable graduates landed jobs at slightly higher rates. As of April 30, 70 percent scored jobs versus 66 percent on April 30, 2013.
Also, those graduates were earning higher pay. The average annual salary of employable graduates was $33,393 as of April 30, up from $32,612 a year before.
ITT shares closed at $25.80 each Wednesday, down 44 percent from a 2014 high of $45.80 in January.