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ITT College Chain Barred From Enrolling Students With U.S. Aid

The federal Department of Education imposed strict new rules on Thursday on one of the nation’s largest for-profit education companies, ITT Educational Services, barring it from enrolling new students who use federal financial aid and ordering it to pay $153 million to the department within 30 days to cover student refunds if its schools close down.

John B. King Jr., the secretary of education, said the department took action to protect both ITT’s students and the taxpayers who are on the hook for losses when students default on their federal aid. “Looking at all of the risk factors, it’s clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds,” Mr. King said in a statement.

The action threatens the viability of the beleaguered company, which like most for-profit education entities relies heavily on government financial aid programs for students to fund its operations. As of June 30, according to a regulatory filing, ITT had only $78 million in cash on its balance sheet.

An email message requesting comment from an ITT spokeswoman late Thursday night was not immediately returned.

ITT operates 137 campuses in 39 states, providing career-oriented programs to 43,000 students at ITT Technical Institute and Daniel Webster College locations. ITT was once a highflying stock, trading above $75 a share in 2012. On Thursday, its shares closed at $1.40.

Document: Dept. of Education’s Letter to ITT

The company has been under increased scrutiny by the Education Department since 2014 and has been accused by both federal and state regulators of misleading students about the quality of its programs and their employment potential upon graduation. The Consumer Financial Protection Bureau filed a lawsuit against ITT two years ago, accusing the college chain of predatorystudent lending.

In addition to the enrollment restrictions imposed by the Education Department, ITT is also prohibited from awarding raises to employees, paying bonuses to its executives or paying special dividends without department approval. In recent years, ITT has not paid bonuses to its executives. Still, Kevin Modany, its chief executive, received total compensation of $1.4 million last year, the company’s proxy statement shows.

The Education Department also required ITT to develop “teach-out” plans for current students, allowing them to finish their programs at other colleges if ITT shuts down.

ITT, based in Carmel, Ind., must also inform its students that its accreditor, the Accrediting Council for Independent Colleges and Schools, has determined that the institution is not in compliance with its criteria. That determination was made this month. Earlier this year, ITT said it believed its schools were in compliance, but it also acknowledged that if the schools lost the accreditation, they would no longer have access to government loan programs.

Those programs are the lifeblood of ITT and other for-profit education companies. Federal aid accounted for almost 70 percent of ITT’s $850 million in revenues last year, the Education Department said.

Consumer advocates praised the department’s action against ITT. “We applaud the Department of Education for taking real action to prevent ITT from recruiting more students to take on federal student loan debt to attend an institution that was found by its accreditor not to fully satisfy even minimal standards in critical areas,” Abby Shafroth, a staff attorney for the National Consumer Law Center’s Student Loan Borrower Assistance Project, said in a statement.

Students currently enrolled in an ITT school can continue their studies, the Education Department said. But students who decide to pause their studies will probably be able to discharge their federal loans if ITT closes down before they finish their programs.

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