ITT Educational Services Inc. has abruptly shut down its eponymous for-profit technical schools, closing more than 130 campuses and leaving as many as 40,000 students stranded in one of the largest college closures in American history.
The company blamed the Department of Education for its downfall in a statement released on Tuesday. Last month, the feds demanded the company produce an additional $153 million in collateral—nearly double its $78 million in cash on hand—to cover possible losses that the government might incur if the company were to suddenly fail.
ITT said it terminated the "overwhelming majority" of its more than 8,000 employees.
"We believe the government's action was inappropriate and unconstitutional, however, with the ITT Technical Institutes ceasing operations, it will now likely rest on other parties to understand these reprehensible actions and to take action to attempt to prevent this from happening again," the company said.
It's a stunning fall for a company whose stock reached highs of nearly $129 per share in 2007 as investors bet that Americans would increasingly flock to for-profit colleges for credentials that would enable them to advance in the economy or gain a foothold in the jobs market. Key to that calculation was the assumption that the Education Department wouldn't impede colleges' access to federal student aid.
The government annually doles out more than $100 billion in loans and grants to students. Colleges rarely face any consequences if their students fail to graduate or subsequently default on their debt. But an increasing array of allegations that ITT misled students about its success at placing graduates in their fields while defrauding investors—the company faces pending lawsuits from the federal Consumer Financial Protection Bureau, Securities and Exchange Commission, and the Massachusetts attorney general—led the Education Department to restrict the company's access to taxpayer funds. ITT has denied the allegations.
Students enrolled at the company's schools have received close to $5 billion in federal aid since 2010, Education Department data show. About $3 billion of that was in the form of student loans. Most of that money went to the company.
Students now enrolled at the company's technical schools will be able to cancel any federal student debt they incurred for their education if they decide against transferring their credits elsewhere. Other former students are pushing to have their debts canceled by alleging that the company defrauded them into taking out the debt by advertising false job-placement rates. Taxpayers will record a loss on those debt cancellations. It's exactly the kind of situation that the feds tried to avoid by demanding that the company produce additional collateral.