The Department has been monitoring the school's operations and finances for two years

Student in Bubble Behind Stack of Books with IOUs for Student Loans / Department of Education Bans ITT Tech from Enrolling New Students with Federal Financial Aid
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August 25, 2016

The Department of Education (DOE) is banning the for-profit ITT Technical Institute chain from using federal financial aid to enroll new students.

The school was notified of the decision by a letter in which the DOE notes that it has been monitoring the school's operations and finances for almost two years.

The letter also notes that the decision to ban was made when the Accrediting Council for Independent Colleges and Schools (ACICS) determined that the school was "not in compliance" and is "unlikely to become in compliance" with its accreditation criteria, says Consumerist.

ACICS issued a letter of its own recently, known as a Continue Show-Cause Directive Letter, in which it questions the school's compliance with several accreditation standards and finds that the school has, in fact, not shown complete compliance.

The standards with which ITT Tech is not in compliance, according to ACICS, are the following:

  • "Minimal eligibility requirements" to ensure the school's "compliance with all applicable laws and regulations"
  • Financial aid administration requirements for students at both the state and the federal level
  • Financial stability as an organization, which includes having enough revenue and assets to be able to meet its responsibilities
  • Enough administrative capacity, including record-keeping practices and overall management
  • ACICS standards for admissions and recruitment
  • Student achievement requirements as measured by student retention, placement, and licensure passage rate
  • Institutional integrity manifested in the efficiency and efficacy of the school's overall administration

Due to these findings, the DOE says that it will no longer allow the school to take part in Title IV under certain circumstances. One of these circumstances is enrolling new students relying on federal financial aid for expenses related to their education.

This could spell trouble for ITT Tech, given that many for-profit schools rely greatly on federal financial aid for students.

"In 2012, the Senate Committee on Health, Education, Labor and Pensions (HELP), which will be the first to review the proposed legislation, found that $32 billion in federal student aid is going to for-profit schools," says Consumerist. "Additionally, nearly 1-in-5 for-profit college graduates default when trying to repay student loans."

The school must use its own funds to cover disbursements of federal aid for current students, and the DOE will reimburse it after that aid is disbursed to the students. In addition, the school must notify the students that ACICS has declared them to be noncompliant and unlikely to become compliant with its accreditation criteria.

ITT also must receive department approval for any raises, bonuses, retention or severance payments to executives, or special dividends or other unusual expenses. And it has to inform the DOE of any financial or oversight events of significance, such as violations of extant loan agreements or extraordinary financial losses, within ten days of occurrence.

In June, ITT received a letter from the DOE requesting that the school put additional money aside through a letter of credit to cover its losses if it should collapse. This letter is collateral the government requests that colleges put aside when officials are concerned that it may be either unable or unwilling to pay back any amounts it owes to the government. In June, ITT's letter increased from 10 percent to 20 percent of all Title IV aid that the school received in 2015, payable in full. Now it is required to increase that letter of credit to 40 percent, or $247 million.

In 2015 the school revealed that it was the subject of a federal investigation for fraud. It has also been sued at various times by the Consumer Financial Protection Bureau, nursing students, the state of Massachusetts, and a whistleblower.

References: Consumerist