And just like that the foundation of ITT Education Services is beginning to crumble. Today, the Department of Education took a series of actions that bans the company behind the for-profit chain of ITT Technical Institutes from enrolling new students using federal financial aid funds. 

The DOE notified ITT of its decision in a letter [PDF] on Thursday, noting that the decision was made after nearly two years of monitoring the school’s operations and finances.

According to the DOE letter, the ban was made after the Accrediting Council for Independent Colleges and Schools — which is facing its own issues — determined that ITT was “not in compliance” and is “unlikely to become in compliance” with accreditation criteria.

ACICS announced in a recent Continue Show-Cause Directive Letter that it continues to question ITT’s compliance with a number of the agency’s accreditation standards, finding that ITT has not demonstrated full compliance.

ACICS points to ITT’s inability to adhere to the following standards:

• “Minimal eligibility requirements” for “compliance with all applicable laws and regulations;”
• Federal and state student financial aid administration requirements;
• Financial stability, including having adequate revenues and assets to meet its responsibilities;
• Administrative capacity, including overall management and record-keeping;
• ACICS admissions and recruitment standards;
• Requirements for student achievement, as measured by retention, placement, and licensure passage rate; and
• Institutional integrity, as manifest in the efficiency and effectiveness of its overall administration of the institution.

As a result of these findings the DOE says it will no longer allow ITT to participate in Title IV in certain circumstances, including enrolling new students who rely on federal financial aid dollars for educational expenses.

This could spell the beginning of the end for ITT Tech, as many for-profit colleges rely heavily on federal financial student aid.

In 2012, the Senate Committee on Health, Education, Labor and Pensions (HELP), which will be the first to review the proposed legislation, found that $32 billion in federal student aid is going to for-profit schools. Additionally, nearly 1-in-5 for-profit college graduates default when trying to repay student loans.

When it comes to current students, ITT is required to use its own funds to cover federal aid disbursements for current students, and the DOE will reimburse the school after aid is disbursed to students.

The company must inform them that ACICS has found that the institution is not in compliance, and is unlikely to become in compliance with its accreditation criteria.

The company also cannot award raises, bonuses, or make retention or severance payments to executives or pay special dividends or out-of-the-ordinary expenditures without department approval.

ITT must inform the Department of any significant financial or oversight events including violations of existing loan agreements or extraordinary financial losses within ten days of such events.

The education operator is also required to once again increase its existing letter of credit from $94.3 million to $247 million or 40% of all Title IV aid the school received in 2015 payable in full.

Back in June, the DOE sent a letter [PDF] to ITT Tech requesting the company set aside more money to cover losses in the event of its collapse.

According to that 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.

Thursday’s action comes amid increasingly heightened financial oversight measures put in place by the Department beginning in 2014 and continued and expanded over significant concerns about ITT’s administrative capacity, organizational integrity, financial viability and ability to serve students, the Department said in a statement.

ITT has been teetering on the edge of collapse for more than a year. It revealed in 2015 that it was the subject of a federal fraud investigation. The Dept. of Education then placed restrictions on ITT’s access to student aid after the school failed to account for millions in federal funds.

The educator has been sued by the Consumer Financial Protection Bureau over its loan practices, nursing students who say they were misled about the school, Massachusetts for allegedly harassing students, and by a whistleblower who alleges that the school deceived applicants about the education they would receive and their job prospects.

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