CalVet Joins Crackdown on For-Profit ITT Schools with GI Bill Loan Suspension

Monday, May 18, 2015

Fresh from its rancid encounters with now-defunct for-profit Corinthian Colleges, the California Department of Veterans Affairs (CalVet) warned, last week, that it was preparing to suspend GI Bill approval for veterans attending the 15 California campuses of ITT Educational Services, Inc.

That would cut off funding for 1,400 veterans in the state. Transferring to other schools is a dicey proposition. Credits may not be accepted, an appropriate school may not be close enough, Cal Grant opportunities may be lost. Time and money are almost certainly wasted.

The department's action was triggered by a Securities and Exchange Commission (SEC) complaint (pdf) filed against the operator of more than 135 schools in 39 states, with enrollment of 57,000, just days before. The schools operate under the names ITT Technical Institute and Daniel Webster College.

The SEC charged that ITT “engaged in a fraudulent scheme and course of business and made various false and misleading statements and omissions to defraud ITT's investors by concealing the extraordinary failure of two off-balance-sheet student loan programs, and the looming effect of that failure on ITT's financial condition.”

The complaint echoed allegations made against Corinthian, the predatory company that targeted low-income students and veterans because they had access to state and federal education financial assistance. Federal money accounted for nearly half of Corinthian’s annual revenue.

Corinthian, once more than 120 schools strong, closed last month. It was the first of the big for-profits to go down, five years after 39 state attorneys general launched a campaign against them. The U.S. Senate joined in with a scathing report (pdf) in 2012 that questioned 30 operations with high drop-out rates, questionable programs and targeting of non-traditional students who piled up loads of debt. 

CalVet took its action because ITT had not submitted audited financial statements, as required by the SEC and the U.S. Department of Education. The company has until July 13 to provide the reports or it can't be a VA provider in the state. ITT “vehemently disagreed” with the SEC's assessment and said it was “eager to have the court clear our reputation.”

After the SEC announcement, Congresswoman Jackie Speier (D-California) “strongly” urged the Education Department to conduct an investigation of ITT. Her letter (pdf) to Education Secretary Arne Duncan sounded certain of what would be found. “This company has engaged in deceptive and predatory lending practices, pushing students into high-interest loans they know cannot be repaid, at vast taxpayer expense,” she wrote. 

She noted that the programs cited by the SEC provide zero-interest loans to new students, which have to be repaid by the end of their first school year. When inevitably those payments aren't made, the students are directed into new high-interest loans to pay of the old no-interest loans. They come due at the end of the second year.

ITT used private money to fund the programs and attracted investors by guaranteeing repayment. The SEC action raises many of the same complaints made by the Consumer Financial Protection Bureau in a 2014 lawsuit against ITT, a point emphasized by Speier.

She doesn't want the Education Department to wait a year to take action, the way it did with Corinthian. The SEC investigated them in 2013.  ITT's stock price dropped 55% in the past month.

–Ken Broder


To Learn More:

California Tells for-Profit Chain to Stop Enrolling Veterans (by Lisa Leff, Associated Press)

Legislator Demands Department of Education Investigate For-Profit Chain ITT Technical Institute (by Ashlee Kieler, Consumerist)

Department of Education Urged to Investigate ITT Educational Services (by Jennifer Abel, Consumer Affairs)

ITT Educational Faces SEC Charges of Student Loan Cover-Up (by Michael Liedtke, Associated Press)

Why are Taxpayers Subsidizing For-Profit Colleges while Public Colleges Slash Budgets? (by Noel Brinkerhoff and David Wallechinsky, AllGov)

United States Security and Exchange Commission v. ITT Educational Services Inc. et al (U.S. District Court Southern District of Indiana Indianapolis Division) (pdf)

Leave a comment