Another For-Profit School In SEC Trouble

By Professor Doom
6-22-15

There’s so much fraud and corruption going on in state and non-profit schools that I usually don’t discuss the immense frauds going on in the for-profit schools. However, for-profits are big enough that it would be a disservice not to at least mention them from time to time: they have so many students that it’s clear not nearly enough people know what goes on in for profits.

So today I’ll talk a bit about ITT Tech. I’m sure my gentle readers have seen the commercials, promising high paying jobs to students that complete their program. Now, I’m all for jobs training programs, especially for jobs that, according to the want ads, are actually available (unlike the many public college graduates with degrees in fields with no job demand whatsoever…Urban Studies, for example). ITT Tech might well be expensive, but at least they are selling a valid product, in theory.

Now, ITT Tech is a big school, but not as big as I thought, considering the nationwide TV ads:

As of last month the company enrolled 51,201 students at its 135 ITT Institute and Daniel Webster College locations in 39 states and online.

This alone is just fascinating. There are many state universities with tens of thousands of students. These universities have one main campus, maybe a couple of satellite campuses, operate in a single state, and don’t spend hundreds of millions on nationwide advertising. Considering the state schools are on tax-free land, they should have much, much, much, lower overhead costs than, say ITT Tech with its 135 campuses spread around the country, each servicing a few hundred students on average, paying for those campuses every month, and still turning profits. Why then, are state schools perpetually cash strapped?

Someone should really look at the finances here, because it’s not all about the tuition, there are obviously some good business ideas at ITT Tech that should be adopted at state schools (I suspect ITT doesn’t employ legions of very highly paid administrators).

Ok, that’s probably giving ITT too much credit for good business practices:

Federal regulators stepped up their scrutiny of ITT Educational Services on Tuesday, charging the large for-profit chain and its two top executives with fraud for allegedly concealing massive losses in two student loan programs the company backed.

Right now, the SEC is just freezing up ITT’s financial aid payments (i.e., taking them out of the student loan scam). This is an act which would totally annihilate state schools, forcing them to shut down. ITT, amazingly enough, has the cash reserves for this to only be an inconvenience:

“ITT was required during this process to provide the department with a letter of credit in the amount of approximately $80 million, which will remain in place for at least the next five years,” she said in a written statement. “The letter of credit will protect students and taxpayers if there are unpaid federal student aid liabilities during this extended period.”

We really need to consider just how much money flows from student loans:

The SEC’s charges center on the company’s PEAKS and CUSO loan programs. Students borrowed $441 million under the two programs beginning in 2009, according to the SEC, with $300 million loaned out under PEAKS.

There’s a lawsuit over these loans, but I love ITT’s response to the lawsuit, which alleges ITT pressured students into taking out high interest, high risk loans. ITT’s response:

“…it is legally flawed and falls outside the consumer protection agency’s jurisdiction.”

So, yes, the loans are high interest, and yes the loans are high risk, but there is nothing wrong, legally speaking, about pressuring suckers students into taking them, and it’s not something the consumer protection agency should be concerned about. Hmm, if taking out a loan for ITT’s “education” is high risk, I guess that means you’re probably not going to get the high paying job in the commercial. Eh, it’s not like TV commercials have much of a reputation for being honest, so I can see ITT’s point here.

The interesting thing about this, however, is that ITT was backing its own loans (which go on top of the Federal loans). Yes, those loans are high interest, probably so high that ITT might not even care about whether the principal is ever repaid but still…that’s a sign of integrity. Why don’t state schools back their own loans? Oh yeah, the purpose of many state schools, especially community colleges with questionable education, is to suck out that money from the Federal government.

The SEC’s problem, however, isn’t questionable education:

“The SEC’s pursuit of the company is different. It revolves around how ITT induced investors to finance the loan programs’ risky lending by backing it with guarantees from the for-profit’s own coffers.

…according to the SEC’s 56-page complaint, the loans had “performed so abysmally, with extremely high default rates, that ITT’s guarantee obligations began to balloon.”

The SEC feels that the executives of ITT weren’t forthcoming with the economic disaster hitting ITT. As much as I’m down on for-profits, I once again find myself siding with ITT. The economic downturn has devastated the job market, despite what government unemployment numbers say. ITT may very well have made those loans in good faith (and backed those loans with its own money, I emphasize). ITT may have charged a lot for those loans, but it’s not ITT’s fault the economy is in serious trouble now, causing so many defaults on the loans…that’s what happens when the economy turns down.

ITT backed their student loans with their own money, and are now losing their shirt. Hey, is anyone connecting the dots as to what will happen with all the student loans backed with taxpayer money? We’re talking well over a trillion dollars, folks.

“does this whole thing offer any relief for the students who took out loans through ITT tech. If so where can a person go to get some of this relief. I was an ITT student and the interest rates on the loans I got through them were insane and are still crippling me financially. I was a young kid when I took out the loans and didn't know any better.”

--from the comments section. To judge what the government did with Corinthian, there’s not much hope the ITT students will get fair treatment. Of course, this happens at state schools too…

So, as near as I can tell, ITT is a pretty decent for-profit school (that’s faint praise, I admit), albeit expensive, and operating like any other business. The SEC is quibbling over whether the executives told investors things weren’t rosy, but that’s pretty hypocritical coming from a government entity. They’re trying to make this into something bigger, however:

Maura Dundon, a senior policy counsel with the Center for Responsible Lending, said that while the SEC’s complaint focuses on the for-profit’s alleged misleading of investors and auditors, it raises deep concerns about how the company treats its students.

“It makes you wonder, if these guys at the top are willing to lie to their auditors, who else are they willing to lie to?” she said.

Absolutely, it’s quite possible ITT is lying about quite a few other things, but, um, just how many major scandals are going on at state schools? UNC, just as one example, engaged in fraud for over a decade, with many documented lies to auditors at accreditation, and I sure don’t see the SEC looking into UNC to see what other lies UNC might be telling.

Not everyone is willing to cut ITT as much slack as I do:

ITT Tech promises students an “Education for the Future” but delivers high debt and uncertain job prospects. ITT Tech spends more of your tuition dollars advertising than teaching, and they pay their CEO $3 million per year. They focus more on profit than your success.

--the gentle reader needs to note that many of the accusations being said here apply on some level to many schools, including those not for profit.

As much as I’d like to slam another for profit school, I have to wonder if maybe something else is going on here, because there are an awful lot of logs in the eyes of state schools to have such concern over a splinter in the eye of ITT tech.

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