ITT Educational Services Files for Bankruptcy After ShutdownBy and
Company had lost access to federal student financial aid
Students may be eligbile for about $500 million in loan relief
ITT Educational Services Inc. began liquidation proceedings in an Indianapolis bankruptcy court Friday after closing 136 technical schools, leaving over 35,000 students stranded in one of the largest college shutdowns in U.S. history.
The 50-year-old for-profit college operator, which had campuses in 38 states, said it was forced to close its doors after the U.S. Education Department demanded a steep increase in the security the company would have to post to guarantee federal student aid. More than 8,000 employees were affected by the shutdown, with the majority losing their jobs, Carmel, Indiana-based ITT said. The company announced this week that it would cease all operations Friday.
Since August 2014, ITT has been under financial and operational scrutiny by the Obama administration, which has been cracking down on the for-profit college business. The agency expanded its oversight in June, citing “significant concerns about ITT’s administrative capacity, organizational integrity, financial viability and ability to serve students.”
The U.S. Securities and Exchange Commission brought fraud claims against ITT and two executives in 2015 for allegedly concealing major losses in two student loan programs. That lawsuit is still pending in Indianapolis federal court.
The Consumer Financial Protection Bureau sued the company in 2014, accusing it of overstating students’ job prospects and potential salaries and then pushing them into high-cost private loans that were likely to end in default. That case is also pending in Indianapolis.
The shares, which traded at about $130 in early 2009, were changing hands for less than 40 cents when they were delisted this month from the New York Stock Exchange.
ITT listed liabilities of $100 million to $500 million in its Chapter 7 filing. Chapter 7 is the section of the U.S. Bankruptcy Code that covers liquidation proceedings under the guidance of a trustee.
“We are selling off the assets including the real estate,” Andy Graiser, chief executive officer of A&G Realty, a real estate adviser hired by the company, said in an interview Thursday.
A unit of Cerberus Capital Management told ITT this month that it was in default on a senior secured loan and demanded immediate repayment of the $34.5 million outstanding. The lender also exercised its right to seize the cash in ITT’s bank accounts, according to a Sept. 14 regulatory filing.
In August, an accreditation board found that ITT hadn’t met its standards and wasn’t likely to. The Education Department barred the school from enrolling new students who rely on federal financial aid and required the company to increase its surety from $94.4 million to $247.3 million, almost double ITT’s available cash.
ITT isn’t the first big for-profit college operator to wither under government scrutiny. Corinthian Colleges Inc. collapsed after the Education Department reduced its access to federal student aid, eventually finding that the company had falsified job-placement figures. Corinthian sold about half its campuses in late 2014 and closed the rest in April 2015 before filing for bankruptcy the following month. It had more than 74,000 students and 10,000 employees as of March 2015.
Students who were enrolled at ITT’s eponymous technical schools or who had withdrawn in the previous 120 days have two options, Education Under Secretary Ted Mitchell said during a Sept. 6 press call about the shutdown. Those who don’t transfer their credits can apply to have their federal student loans discharged under a government program, while those who complete “comparable” studies elsewhere generally wouldn’t have their loans discharged, Mitchell said.
If every student files for a closed-school loan discharge, the payout could be as high as $478.8 million, according to the Education Department. ITT has put up $94.4 million to defray taxpayer liabilities.
The case is In re ITT Education Services Inc., 16-07207, U.S. Bankruptcy Court, Southern District of Indiana (Indianapolis).
— With assistance by Pamela A Maclean