ITT Technical Institutes was founded at the end of World War II as part of International Telephone & Telegraph. It split off from the corporation in the mid-1990s. The spin off came at a time when privatization was embraced. Investors flocked to the for-profit education sector. From 2000 to 2003 spending in the education sector was higher than any other sector on Wall Street.
However, even while business was booming, allegations of abusive practices in the industry were leveled. In 2004, the United States attorney’s office in Houston opened an investigation. While the investigation was closed, suspicions lingered on ITT and other for-profit educational centers. In 2005, ITT agreed to a $725,000 settlement with California employees after it was revealed that ITT had inflated grades to qualify for state financial aid. Investors filed securities fraud lawsuits.
The issue was raised that the industry was overselling programs, which in turn left enrollees in debt with little value in the job market. According to former employees, recruiters were pushed to enroll more students regardless of their ability to repay loans, their chances of graduating, or their preparation. The economic downturn during the Great Recession also helped draw students who wanted to boost their chances on the job market.
Profits grew from the increased enrollment, but so did concern. The past few years have been fraught with allegations of fraud, deceptive marketing, and steering students into predatory loan schemes. Many graduates and insiders filed complaints with state prosecutors and regulators, the Education Department, and other lawmakers. The Consumer Financial Protection Bureau, the Securities and Exchange Commission, and nineteen other states have either investigated or sued ITT in addition to private lawsuits.
On September 6th, ITT Technical Institute announced that they would discontinue operations at all of their campuses. This comes two weeks after the Department of Education prohibited ITT from enrolling new students who would be utilizing federal financial aid. The Department of Education had also tightened its oversight of the company. Citing the actions and sanctions of the U.S. Department of Education, ITT argued that the government’s actions were inappropriate and unconstitutional. The Department of Education defended its actions based on its duty to protect students and taxpayers.
The Department of Education took action after ITT’s issues with its accreditor. ITT’s accreditor, The Accrediting Council for Independent Colleges and Schools, asked ITT to show why it was worthy of accreditation in April. They determined that ITT was not in compliance, and were “unlikely to become in compliance” with its criteria. Following ITT’s closure, the 35,000 students who were enrolled at ITT within the last 120 days have the choice of either walking away from their outstanding student loans, or transfer the credits they’ve earned, however they cannot do both.
The lawsuits are just beginning for ITT. It seems likely that the business will file for bankruptcy. A case pending before the Supreme Court claims that ITT violated the WARN Act. ITT is also likely to sue the Department of Education. So while ITT may have closed its doors, legal troubles are unlikely to end any time soon.
Libby Casale is a second year law student at Wake Forest University School of Law. She holds a degree in Business Administration with an emphasis in Entrepreneurship, and minors in Economics and History from Oregon State University. Upon graduation, she plans to practice in the areas of privacy and cybersecurity law.