The End for ITT Tech

Students across ITT Technical Institutes' 130 campuses awoke Tuesday morning to emails saying they wouldn't be attending class anymore.

After months of sanctions and years of investigations and lawsuits, ITT Educational Services -- the institution's parent company -- announced it was closing all of its campuses.

"Today, we know by our experience that a U.S. institution or business can be forced to shut down without proof of allegations," said Kevin Modany, chief executive officer for ITT Educational Services, in a call with reporters. "The regulatory assault on our schools and institutions is unprecedented …. We have had no right to pursue our right to due process, and this should be concerning to all Americans."

However, the U.S. Department of Education defended its actions that led to the closure of ITT, which had been a career college operator for 50 years.

"It wasn't a decision we took lightly," said U.S. Under Secretary of Education Ted Mitchell in a phone call with reporters. "Ultimately, our responsibility is not to any individual institution. It's to protect all students and taxpayers, and I have no doubt our decision to take action was the right one."

The closure affects more than 40,000 students and 8,000 employees. As of Tuesday, ITT cut back its operations to about 200 employees who will help students receive their records, facilitate transfers to other institutions and assist in other operations, Modany said, adding that students were being contacted and provided with a list of alternative institutions in their areas.

"We're frustrated. We're saddened and all the emotions you would expect to have," he said. "But what's done is done …. Our focus is on our students and their families, and we'll do everything we can to mitigate the effects of what we believe was a preventable situation."

The news comes nearly two weeks after the U.S. Department of Education prohibited ITT from enrolling new students who use federal financial aid. The department also tightened its already enhanced oversight of the company, including a prohibition on ITT awarding raises, bonuses or severance packages to the company's executives. In addition, the department increased the company's letter-of-credit requirement from about $124 million to approximately $247 million. A letter of credit is collateral the government asks colleges to set aside when officials have concerns that an institution may be unable or unwilling to pay back money it owes the government.

"The department has taken strong action to protect students and taxpayers, and it was the right decision," Mitchell said. "It's important to remember when we took our action, we took it in the face of growing evidence that ITT was a risk to both students and taxpayers …. There are very fundamental issues of institution integrity, financial stability, administrative capacity and their ability to meet federal and state financial aid administration requirements, so these are not small matters, these are matters that cut to the heart of the institution's ability to provide quality service to its students and to provide value to taxpayers in the Title IV program."

The for-profit's collapse means taxpayers may have to cover approximately $500 million in federal student loans owed by current and recent ITT Tech students. While the department had recently increased ITT's letter of credit, the company had set aside only about $90 million so far, Mitchell said, adding that the department is hopeful most students will consider transferring to new institutions instead of opting for a closed-school discharge.

ITT had also been facing several state and federal investigations and legal actions, including lawsuits from the Consumer Financial Protection Bureau and the U.S. Securities Exchange Commission. But it was ITT's issues with its accreditor that spurred the department to take its recent action. The Accrediting Council for Independent Colleges and Schools last month determined that ITT was not in compliance and "unlikely to become in compliance" with its criteria. ACICS also is facing federal scrutiny.

The department has been in direct contact with some community college leaders as well as regional and national accreditors about being flexible with transfer credits from ITT and helping its students transition to their new campuses, Mitchell said, adding that they've created a website specifically for ITT students to help them through the process. Some community colleges already have expressed an interest in assisting ITT students, including Seminole State College of Florida and Cuyahoga Community College in Ohio.

However, transferring may not be an option for someone like Jimmy Bilbo, who was close to graduating this spring from ITT Tech with a bachelor's degree in cybersecurity.

"I've heard a lot of my credits wouldn't transfer," Bilbo, 36, of Marrero, La., said. "They said it was the luck of the draw and whatever school I was trying to transfer to. I was looking over the list they gave me, and none of the schools in the area have the same program I'm studying. It just seems like I've been going to school for three years now and I'm about to have nothing to show for it, and at the same time I've used my entire Post-9/11 GI Bill [benefits] on going here."

Bilbo said ITT for the past week had been sending him emails explaining that classes would start normally and that the Education Department's recent actions only affected new students. So far, he's struggled to get in touch with his campus for transcripts and help on what to do or where to go.

He's also concerned about losing the monthly housing allowance that's included in his GI Bill benefits, which helps Bilbo pay his mortgage. At this point, Bilbo said he's not certain whether he would start over again at a new institution if he can't use the credits he's earned.

"I would have to take some time to think about it," he said, adding that the "past three years haven't been easy. There's been a lot of late nights and early mornings, and doing all of this while still trying to have a job and raise children is kind of hard. Saying all of that was for naught, it's just hard and it makes you really think about whether you want to put yourself or your family through that."

Tough Regulations

So far, ITT has not filed for bankruptcy, although there were potential buyers interested in taking over the institution, Modany said. While he said he couldn't disclose names, Modany said some of the interested buyers were nonprofit organizations or higher education institutions.

"Various regulators were informed of those discussions, and we moved some of those along fairly significantly, but I'm not in a position to tell why those alternatives were rejected, including providing us with the opportunity to have an orderly wind down, discontinue new student enrollment and teach-out," he said. "Those alternatives, as we proposed them, were not acceptable to the department."

Last year, when Corinthian Colleges was close to collapse, the department helped broker the sale of half of the for-profit chain to Zenith Education Group. However, Mitchell said, the ITT situation is slightly different and the department made a policy decision that it's not the role of the federal government to help an institution broker a sale.

"There were conversations back and forth between the department and ITT, but we never formally rejected or accepted a proposal," Mitchell said. "We just didn't see a path forward to providing quality education to ITT Tech students, and that made the difference."

But some for-profit officials see the department's actions as being a significant way to eliminate an institution.

"None of this was necessary," said Steven Gunderson, president and CEO of Career Education Colleges and Universities, a group that represents for-profit institutions. (ITT is not a member.) "The U.S. Department of Education could have created a process that ensured students currently pursuing their higher education were protected. Instead, we will likely have 43,000 students without access to higher education. Many with debt, but no degree."

ITT Tech also owns Daniel Webster College, which was excluded from the department's recent actions. However, last week the small New Hampshire college was told by its regional accreditor that it may not meet accreditation standards and must "show cause" about why its approval should not be removed later this month.

"As of now they are operating and beginning their fall semester and teaching classes," Modany said of the college, which enrolls about 740 students. "We'll have to see how this ultimately impacts operations there, and we are actively seeking alternatives to continue that school's operations …. I can't express that we'll be successful."