SEC Charges Prompt New Scrutiny for College Chain

The U.S. Department of Education has ramped up monitoring of ITT Educational Services Inc. after the Securities and Exchange Commission filed civil fraud charges against the Indiana-based for-profit college giant and two executives, the company revealed.

ITT must provide cash flow projections every two weeks, along with other information about financial transactions, planned school closures and expected new program offerings. The company also must provide the Education Department with a monthly roster of its 51,000 students, detailing their anticipated graduation date, enrollment status and individual contact information.

ITT already was operating under restrictive conditions regarding its access to federal money. The Education Department imposed heightened cash monitoring last year after the company failed to file annual financial and compliance audits on time. The company said Friday it expects its institutions to be subjected to [heightened cash monitoring] until at least November 2019.

Last year, the Consumer Financial Protection Bureau sued ITT and accused the company of exploiting its students by pushing them into high-cost private student loans that likely would end in default. 

The CFPB in that lawsuit claimed many students didn't realize 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 alleged. The lawsuit mostly involved private student loans issued by third parties in 2011.

The newly announced monitoring requirements are intended to provide Education Department officials with more immediate information about the company’s finances.

The Education Department has faced criticism for not having the proper systems in place to monitor the finances of large, publicly traded for-profit education companies like ITT.

Last year, Corinthian Colleges, a California-based chain of for-profit colleges, was accused by the Consumer Financial Protection Bureau of making predatory student loans and engaging in illegal debt collection tactics. Corinthian left students with unsustainable debt levels and lackluster job prospects, the CFPB said. 

The Education Department intervened in the company’s operations, cutting off Corinthian’s access to federal student loans without which it could not survive. It was an unprecedented move that followed allegations that Corinthian falsified graduation statistics, inflated job numbers and abused the student lending process. The school closed all operations in April.