ITT Educational Services Inc., facing a federal lawsuit from the Consumer Financial Protection Bureau over alleged predatory student lending, has seen a large drop in its stock price and other woes amid tightening regulatory scrutiny of for-profit colleges nationwide.
Parent company ITT Technical Institute's stock price has fallen 75% this year and the company's CEO, Kevin Modany, recently announced his resignation. Also, a potential money-raising deal to sell some several of its properties fell through. ITT missed its 2013 full year and 2014 first quarter earnings results, as well as a summer deadline for filing its annual financial report with federal regulators, opening it up to potential sanctions from the U.S. Department of Education, including a cutoff of the federal student aid money that is its lifeblood.
The CFPB's lawsuit is the consumer watchdog agency's first public enforcement action against a company in the for-profit college industry.
The lawsuit states ITT exploited its students and pushed them into high-cost private student loans that were likely to end in default. The CFPB seeks restitution for victims, a civil fine and an injunction.
The CFPB claims many students did not know they had private student loans until they began receiving collection calls. For borrowers with credit scores under 600, the costs of the private student loans included 10% origination fees and interest rates as high as 16.25%, the lawsuit alleges.
The lawsuit mostly involves private student loans issued by third parties during a five-month period in late 2011, according to the Indiana-based college chain.
Education experts and stock analysts said ITT is struggling to ward off the same kind of regulatory crackdown that recently forced the collapse of another for-profit college, California-based Corinthian Colleges Inc.
ITT's problems also arrive as the Obama administration works to enact new regulations to protect students enrolled at for-profit colleges from incurring large amounts of loan debt. Those rules are aimed at certain for-profit college programs, which the Education Department has criticized for relatively high-cost degrees that can lead to earnings lower than those of high school dropouts.
ITT spokeswoman Nicole Elam said company officials are in regular contact with the Education Department, an agency she said has been patient with ITT as it tries to re-audit its books and disclose past-due financial filings.
Elam said ITT is working to solve its problems, including reviewing other options for selling its properties even as it seeks new leadership to replace Modany, who left after seven years on the job.
ITT employs 620 workers at two campuses in Indianapolis at its headquarters and a student support center. An estimated 57,000 students are enrolled with ITT nationally, mostly in associate degree programs.
In May, the Eli Lilly Federal Credit Union in Indianapolis announced a $26 million loss on default-prone loans to students enrolled at ITT Technical Institute.