The Obama administration’s regulatory crackdown on for-profit colleges has put another school out of business — setting a new bar for what enforcement could look like under a possible Clinton Education Department.
The collapse Tuesday of ITT Tech, a massive, publicly-traded for-profit education company with 130 campuses across the country, comes just 12 days after Obama’s Education Department imposed stringent new regulatory restrictions on the college chain. Taxpayers are now on the hook for nearly $500 million in federal loans that ITT students are eligible to have forgiven.
It was the most aggressive action yet by an administration that has long sparred with the for-profit education industry but had walked a delicate line in being sensitive to business interests while seeking to impose stronger consumer protections for students.
This is the second time in as many years that the crackdown has brought down one of the industry’s biggest players — and saddled taxpayers with potentially hundreds of millions in cleanup costs.
Students who attend a school that abruptly closes are eligible to ask for a "closed school discharge" of their loans. For years, some liberals have complained that big for-profit education companies were treated as if they were too big to fail by regulators, because the cost of forgiving loans from a large for-profit could be massive.
But the Obama administration’s action against ITT Tech signals a new willingness to take on large for-profit colleges — regardless of the millions it could cost. In ITT’s case, it could cost taxpayers nearly $500 million to forgive the students’ loans. The hit to federal coffers will likely be softened by the more than $94 million that the Education Department had already ordered the company to set aside to cover those costs.
Sen. Sherrod Brown (D-Ohio) praised regulators for holding ITT "accountable."
"The Department of Education sent a clear signal that ripping off students and taxpayers will not be tolerated — no matter how big the school is or how many lobbyists it employs," Brown said.
The move by the department comes under the watch of Education Secretary John B. King Jr., confirmed in March, who is considered a possible candidate to remain as secretary under Clinton. And Rohit Chopra — a former senior adviser to King, ally to Sen. Elizabeth Warren, and outspoken critic of ITT — recently joined Clinton’s transition team.
Tuesday evening, Warren bashed ITT's track record in a Facebook post, writing that the school "left tens of thousands of students drowning in debt with useless degrees."
"ITT had years to clean up its act and multiple warnings," Warren wrote. "But instead, it chose to engage in outright fraud to keep the gravy train going to the tune of over $600 million in taxpayer dollars just last year."
For-profit industry leaders and their supporters say that Carmel, Ind.-based ITT is just the latest victim of an Education Department hell-bent on targeting and dismantling the sector.
Rep. Virginia Foxx (R-N.C.) who chairs the House’s higher education subcommittee, accused the department of “intentionally” targeting the industry with “unnecessary regulations that threaten student choice, innovative schools and an American economy that stands to benefit from responsive higher learning institutions.”
“Today’s announcement that leaves thousands of students in a difficult position is a direct result of the Obama administration’s harmful policies,” she said.
But Sen. Dick Durbin (D-Ill.) said ITT Tech “has no one to blame but itself for its failure.”
"For years, the company exploited students and fleeced American taxpayers. Today, its predatory practices have finally caught up to it,” Durbin said.
Last year’s demise of Corinthian Colleges, under similar regulatory pressure from the Education Department, has already directly cost taxpayers at least $97 million — on top of an additional tens of millions of dollars in fraud-related claims by students.
ITT Tech CEO Kevin M. Modany told reporters Tuesday that the department is more politically charged than any other time in his 15 years in the business.
"Today, we know by our experience that a U.S. institution or business can be forced to shut down without proof of any allegations,” Modany said. "The legal and regulatory assault on our schools and this sector of education is certainly unprecedented.”
Since taking office, the White House has been critical of for-profit colleges, but took pains to say it’s interested only in rooting out bad actors — not bringing down an entire industry. But in recent years, as abuses by some for-profit colleges has become a galvanizing political issue for the left, the administration has more forcefully taken action against for-profit education companies.
Then-Education Secretary Arne Duncan said in an MSNBC interview last year that the administration was “thrilled to be able to close down Corinthian.” As Corinthian slowly collapsed over the course of a year, under the weight of Education Department restrictions, the department helped broker the sale of half of that company to a nonprofit entity.
This time around, though, the department acted swiftly against ITT Tech. The Education Department prohibited the college chain from enrolling any new students using federal student aid — in what amounts to a death sentence for the company, whose main source of revenue is federal student loans and grants.
For months, ITT had been at risk of losing its accreditation. The school has also been investigated by about a dozen state attorneys general, and was sued by both the Consumer Financial Protection Bureau (for alleged predatory lending) and the Securities and Exchange Commission (for alleged securities fraud).
ITT Tech is the second biggest recipient of Pell Grant in the country – trailing only the massive University of Phoenix. In the past year, ITT received more than $165 million in Pell Grants, federal records show. And the company took in an additional $281 million in federal student loans, according to federal data.
Trace Urdan, a for-profit college analyst, said the Obama administration is “pretty clearly” taking a more aggressive stance than previous presidents, and that it's only grown with intensity under King.
Politically, the administration faced little backlash for its handling of Corinthian, and gains politically in its aggressive oversight with liberals like Warren, Urdan said.
“This feels like a winning issue — at least for Democrats and the Political Left. …. They feel like it gets points with Progressives and doesn’t really cost much with moderates,” Urdan said.
Urdan said the naming of Chopra to Clinton’s transition team could signal that Clinton takes a similar view.
“They are sort of seeing this through the same lens that the current administration is, that this is kind of a winning issue for them,” Urdan said.
Others see the Clintons' own personal ties to the for-profit sector — Bill Clinton was paid nearly $18 million to be "honorary chancellor" at for-profit Laureate Education — as suggesting that a Clinton administration might not regulate the industry as aggressively as Obama has.
Donald Trump, who has been dogged with questions about his role in a real estate venture known as Trump University, has said little about how he would handle the oversight of for-profit colleges. But given his business background, it’s widely assumed he would be friendly to the industry.
King on Tuesday defended the department’s actions against ITT, saying it was “a difficult choice” but was necessary to protect students and taxpayers “from potentially worse educational and financial damage in the future” if ITT was allowed to continue to operate. The Education Department said it took action after ITT’s accreditor said it was no longer in compliance.
In 2011, then-Sen. Tom Harkin (D-Iowa) blasted ITT’s recruitment tactics from the Senate floor. Harkin, a critic of the industry, seized upon a “pain funnel” training document that was used to train some ITT recruiters. The “pain funnel” reminded prospective students, many of whom were financially struggling, about how bad their life was. If a prospective student was hesitant about signing up for classes, recruiters were instructed to “poke the pain a bit” and remind the student of how awful their life would continue to be without a college degree.
At the time, ITT management responded that the pain funnel had never been formally approved by the company as a training tool.
One former ITT student now weighing his options is Chris Blank, who served in Afghanistan with the Marines. The father of two told POLITICO he’s been studying electrical engineering at an ITT campus in Vista, Calif., for three years, but still is about nine months short of getting his degree.
The GI Bill benefits he used to attend ITT can’t be reset, and he said he’s taken about $25,000 in student loans to help with costs. With his school closed, he’s no longer eligible for Veterans Affairs Department housing benefits and he worries about how he will pay rent next month.
“I’m hoping they did it in the best interest of students and taxpayers,” Blank said of the department action.