Is ITT Tech Headed For A Collapse? School Required To Set Aside Funds Just In Case

Trouble continues to mount for ITT Educational Services. The for-profit college operator behind the ITT Technical Institute chain, which is already under investigation by federal and state agencies for a slew of abusive and misleading practices, must now have enough money on hand just in case it’s forced to close its doors. 

The Department of Education sent a letter [PDF] to ITT Tech on Monday requesting the company set aside more money to cover losses in the event of its collapse.

According to the letter, the decision was made to order ITT Tech to increase its letter of credit from 10% to 20% after the Accrediting Council for Independent Colleges and Schools began scrutinizing the school over allegations from state and federal agencies about the institution’s administration, organization and financial viability.

A letter of credit is collateral the government asks colleges to set aside when officials have concerns that an institution may be unable or unwilling to pay back money it owes to the government.

To protect students and taxpayer funds, the Department determined that ITT’s surety must increase from $79.7 million to $123 million.

The Department says in its letter that ACICS’s questions to the school in an April letter represent an increased risk to federal funds currently held by ITT Tech.

“ITT’s failure to demonstrate complete with the Accreditation Criteria, within the time period specified by the accreditor, may result in the accreditor’s taking an adverse action with respect to the school’s accredited status,” the letter states, noting that if ACICS — which faces its own troubles from federal regulators — revised its approval of the school could result in the institution losing students and the loss of Title IV eligibility.

Illinois Senator Dick Durbin applauded the Department of Education’s move on Monday, noting that the action will better taxpayers against losses associated with potential collapses of for-profit colleges.

“Today’s move by the Department of Education means that ITT Tech is on the watch list,” Durbin said in a statement. “It means that if ITT Tech doesn’t change its ways and collapses as Corinthian Colleges did, the federal government will have more resources to pick up the pieces. The Department should continue to take steps to prepare for this real possibility, including making certain that ITT Tech submits quality teach-out plans so that students have clear options to continue their education should the company collapse.”

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