For-profit college ITT Educational Services shut down Tuesday — leaving 40,000 students high and dry, 8,000 employees out of work and taxpayers on the hook for as much as $500 million in now-worthless student loans.
The move by the school, known as ITT Technical Institute — with 130 campuses in 39 states — follows a decision by the Obama administration last week to deny financial aid to new students.
The Obama White House has been probing for-profit colleges over possible deceptive advertising and unethical recruiting practices.
ITT-obtained educations have often left graduates saddled with loans so predatory that the Consumer Financial Protection Bureau, in a 2014 lawsuit, called them “destined to default.”
Roughly 80 percent of ITT’s revenues come from government-backed student loans.
The school, based in Carmel, Ind., just north of Indianapolis, placed the blame for its closing on Obama’s Department of Education, calling the agency’s action “inappropriate and unconstitutional.”
“These unwarranted actions, taken without proving a single allegation, are a lawless execution,” it said in a statement.
In a letter to ITT students, Education Secretary John B. King Jr. denied the school’s claim, saying the agency’s restriction on federal student aid came after years of concern over ITT’s finances, integrity and management.
“Ultimately, we made a difficult choice to pursue additional oversight in order to protect you, other students and taxpayers from potentially worse educational and financial damage,” he wrote.
King’s letter also advised current and recent ITT students that — unless they opted to transfer their credits — their federal student debt “will be wiped away and you will have the option of restarting your education somewhere new.”
The Obama administration took the same tack with loans to students at Corinthian Colleges, another for-profit school forced to close its doors last year.
Before shutting it down, the government paved the way for the sale of 85 of 97 Corinthian Colleges. And, working with the CFPB, the White House agreed to forgive up to $500 million in student loans held by the institution’s current and former students.
Together with likely ITT student loan forgiveness, taxpayers may be facing a $1 billion toxic student loan bomb.
ITT put up less than $100 million bond to cover defaulted loans.
And the amount of future forgiven loans could go much higher.
The Brookings Institution calculated that debt owed by for-profit college borrowers totaled $229 billion in 2014 — up nearly 500 percent from $39 billion in 2000 — while the number of for-profit borrowers increased just 129 percent.
In a June follow-up study, “The For-Profit Student Debt Dilemma,” Brookings said for-profit students have “the lowest average annual household income and are closest, on average, to the poverty line” when compared to all college students.