ITT shares sink after feds order educator to bolster finances

June 7, 2016

Shares in ITT Educational Services swooned Tuesday morning after federal regulators ordered the Carmel-based for-profit educator to boost its cash reserves.

The Department of Education on Monday sent a letter to CEO Kevin Modany, asking the school to show that it has more than $123.6 million available to refund students in the event ITT shuts down unexpectedly.

The education department requires hundreds of for-profit and not-for-profit colleges to post letters of credit from banks showing they have a certain level of cash reserves. ITT previously was required to have $79.7 million on hand, but the department said they were raising the company’s surety requirement because the school was facing additional scrutiny from the Accrediting Council for Independent Colleges and Schools.

The department cited an April 22 letter in which ACICS questioned ITT’s “administrative capacity, organizational integrity, financial viability and ability to serve students that complies with ACICS standards.”

The ACICS said ITT was facing civil investigative demands from 19 state attorneys general regarding marketing, recruitment, financial aid, academic advising, career services, admission practices, accreditation, graduation rates and job-placement performance.

In addition, the ACICS said ITT faces litigation and investigations from three federal agencies related to the school’s “student-lending practices and misrepresentations to investors.”

Staying in compliance with the ACICS is important for ITT because it would lose its federal funding for student loans without it. Most of ITT's revenue comes from federal loan funding.

The education department said the $123.6 million cash-reserve requirement was equivalent to 20 percent of the federal funds the school received last year. The reserves would be needed to cover costs “should the institution precipitously close or terminate classes at other than the end of an academic period,” the department said.

The department also placed additional reporting requirements on ITT.

“We received the U.S. Department of Education’s letter and are working with the Department to adequately address their new requirement,” ITT spokeswoman Nicole Elam said in an email to IBJ on Tuesday. “We continue to cooperate with all regulatory authorities as new mandates are levied upon us. As always, ITT Educational Services will continue to keep students our No. 1 priority.”

ITT has about 43,000 students at 130 ITT Technical Institute campuses in 38 states.

The for-profit education industry has struggled in recent years amid tighter scrutiny from the Obama administration, which accused schools of exaggerating what prospective graduates could earn while saddling them with mountains of debt.

On April 29, ITT said it made a profit of $4.1 million in the quarter ended March 31, compared with profit of $10.4 million in the same quarter of 2015. Revenue in the quarter was $191.5 million, down almost 17 percent from the $230 million the company brought in a year ago.

Total student enrollment decreased 15.4 percent, to 43,293, as of March 31, compared with 51,201 as of March 31, 2015. New-student enrollment in the first quarter dropped 16.4 percent, to 11,788, compared with 14,104 in the same period in 2015.

ITT shares were down 11 percent in mid-morning trading, to $1.94 each. They have fallen 48 percent since the beginning of the year.



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