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ITT closes: what it means for for-profit schools, their students, and taxpayers

The Carmel, Indiana-based ITT Educational Services announced that it will be shutting down all its campuses.

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    Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee, releases a Senate Democratic report asserting that for-profit schools often hit vulnerable students with exorbitant tuition, aggressive recruiting practices, and abysmal student outcomes, on Capitol Hill in Washington, D.C. on Monday, July 30, 2012.
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ITT Technical Institute is shuttering its doors after the federal government banned the for-profit college chain from enrolling students with federal financial aid last week. The closure leaves over 40,000 students with halted education, and most of about 8,000 employees laid off.

This news isn't just creating challenges for those connected with the chain of vocational colleges: it could also be bad news for taxpayers. As the closure of for-profit college giant Corinthian Colleges last year showed, students who took out federal loans could have them dismissed if they can prove the institution deceived them.

And, with about 68 percent of ITT's $850 million revenue coming from federal money last year, according to the US Department of Education, a lot of taxpayer money could be on the line.

ITT Educational Services, Inc blamed the federal government for the shutdown. "With what we believe is a complete disregard by the U.S. Department of Education for due process to the company, hundreds of thousands of current students and alumni and more than 8,000 employees will be negatively affected," the company wrote in a statement.

"The actions of and sanctions from the U.S. Department of Education have forced us to cease operations of the ITT Technical Institutes, and we will not be offering our September quarter. We reached this decision only after having exhausted the exploration of alternatives, including transfer of the schools to a non-profit or public institution."

For the thousands of students enrolled at ITT, the options may be limited. Other programs might not accept credits from the institution if students choose to transfer. And while some students receiving federal aid may be able to recoup those losses, veterans who have funded their months of education at ITT under the G.I. Bill will still have those months discounted from their eligibility, Carrie Wofford, the president of Veterans Education Success, a nonprofit group, told The New York Times.

Furthermore, studies have suggested that students at for-profit schools saw their earnings drop after enrolling

That may come from the institution's recruitment tactics. Massachusetts Attorney General Maura Healey investigated ITT Technical Institute and found the following, as The Christian Science Monitor reported in April:

Healey's investigation into ITT Tech found that the school used aggressive sales tactics to enroll students in the school including, direct phone calls and in-person communications. Admissions representatives were expected to call up to 100 prospective students per day and would be publicly shamed or fired if they failed to meet their quotas. The representatives persuaded students to make immediate applications, and pressured others into enrolling, regardless of whether they were likely to succeed in the program, according to the lawsuit.

Furthermore, the school promoted false advertisements claiming they provided hands-on training and personalized attention through its program, investigators found. Students complained that teachers were absent at times, and that the school used outdated technology.

Similar conditions have helped former students of the defunct Corinthian Colleges have their loans forgiven.

So is there a future for for-profit colleges?

Perhaps if they focus more on providing a quality education, David Halperin, a Washington lawyer and the author of “Stealing America’s Future: How For-Profit Colleges Scam Taxpayers and Ruin Students’ Lives,” told The New York Times. 

And, he said, "For for-profits willing to live by reasonable rules … there is an opportunity there to make some money."

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