Government Delivers Killer Blow Against For-Profit College Chain ITT

In cutting access to federal funds, the Education Department has virtually guaranteed the demise of a chain of colleges that was once valued in the billions of dollars.

One of the country's largest chains of for-profit colleges has been handed a virtual death sentence by the Education Department, with its stock losing more than a third of its value in the hours following the announcement.

ITT Educational Services, which has about 40,000 students enrolled at more than 130 ITT Technical Institute schools across the country, can no longer sign up new students using federal financial aid dollars, the government ruled. The company's executives are also forbidden from taking bonuses or pay raises as part of the order.

And beyond losing access to new students, the school operator must provide the government with a $150 million letter of credit before it can access federal funding for its current students. The requirement will be tough for ITT to meet — it reported just $78 million in cash on hand at the end of June, and investors now value the entire business at just $33 million, with stock trading at just $1.40 per share, down from a high of $128 in 2009.

"It simply would not be responsible or in the best interest of students" to allow new enrollments at the school using federal funds, Secretary of Education John King said in a statement. If the school ends up closing, students may be able to have their loans canceled, the statement said.

ITT did not immediately respond to requests for comment.

The action represents the end of a years-long series of regulatory moves against ITT, including a lawsuit filed in early 2014 by the Consumer Financial Protection Bureau that accused it of running a predatory lending scheme. In May 2015, the Securities and Exchange Commission charged the company with fraud, and this April, the school was warned it could lose its accreditation.

But Thursday's move by the Education Department is the most damaging action yet, and one the school may not recover from. Cutting off access to federal financial aid is the government's killer weapon when dealing with for-profit colleges — a 2014 move to withhold funds from Corinthian Colleges, the country's largest for-profit chain at the time, led to the collapse of the company.

ITT itself has given suggestions recently that its future is uncertain. Last month, it announced plans to slash its recruitment of new students to preserve its remaining cash.

"It seemed like they were potentially winding down themselves," Trace Urdan, an analyst at Credit Suisse, told BuzzFeed News. "The department is basically pushing them down the stairs."

Urdan questioned the timing of the government's move to cut off ITT's access to new federal aid. Though the Education Department said the it was imposing the sanctions because of a "show cause" order by the school's accreditor, that order has been in place since April; its status as "out of compliance" with the accreditor was merely renewed last week.

"The timing seems like politics," Urdan said. "If they shut ITT down, it feeds into the narrative," he said, of the Obama administration's crackdown on for-profit colleges, which began in earnest with the shutdown of Corinthian Colleges two years ago.

"It's the end of road for the administration, and they're amping it up — they're going to do anything they can."

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