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Feds hit ITT Educational with more restrictions

October 20, 2015

The Obama administration on Monday placed additional restrictions on how ITT Educational Services Inc. uses federal student loans and grants, saying the Carmel-based operator of for-profit colleges had failed to properly account for the federal funds it received in the past.

That decision by the U.S. Department of Education moves ITT one step closer to losing access to federal student loan funds—which provide the vast majority of its revenue. But the company said it does not expect the new limits to hurt its finances.

“While the additional requirements will result in an increased administrative burden, the company does not believe they will have a material negative impact on our financial results, or in any manner affect the timely award of financial aid to eligible students or the operation of our campuses,” ITT spokeswoman Nicole Elam said in a written statement.

ITT has not produced proper and timely accounting for the federal grants and loans it distributes to students since at least 2009, the U.S. Department of Education said in a letter sent to ITT on Monday. As a result, the letter says, ITT will now be allowed to pay out federal education funds to students only after they have attended classes and been certified as eligible by a school representative.

Along with delaying ITT's receipt of federal funds, the education department will also require the company to provide it with monthly reports about students and news about any restrictions placed on it by lenders. In a statement accompanying the letter, Education Undersecretary Ted Mitchell said that the government would take additional actions against ITT if it believed doing so would keep students safe.

Elam, the ITT spokeswoman, said, “We are complying with the department's requirements and are already in the process of implementing measures to fully address the related reporting and administrative matters.”

The Education Department had previously imposed a form of additional financial scrutiny on ITT known as heightened cash-flow monitoring, and required ITT to provide a letter of credit for $79.7 million, roughly 10 percent of the student aid it processes every year.

ITT — which operates ITT Technical Institutes in 27 states — already faces legal challenges from both the U.S. Securities & Exchange Commission and the Consumer Financial Protection Bureau. The SEC alleged in May that the company and its top executives committed fraud by hiding losses in an ITT student loan program, while the CFPB sued ITT last year, accusing it of pushing students into high-cost, predatory loans.

The negative attention has been hurting ITT’s ability to attract students. Enrollment of new students shrank by nearly 19 percent in the three months ended June 30, compared with the same period last year, to 12,638. Enrollment of continuing students also fell nearly 12 percent over the past year, to 35,236.

ITT's revenue declined 10 percent, to $214.2 million, in the second quarter compared with the same period last year. The company eked out a second-quarter profit of $716,000.

Shares of ITT Educational's stock price rose 3 percent this morning, to $3.43 per share.
 

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