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Is ITT Tech screwing over students?

Is ITT Tech screwing over students?


A new watchdog agency alleges that this for-profit college is misleading applicants

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"Why do something tomorrow when you can go out and do it today?"

That’s a question posed by Raechel Pendleton, a Kansas City, Missouri-area resident, in a 2010 commercial for ITT Tech. This publicly traded, for-profit college might be best known for these advertisements, played in heavy rotation across the country. As Raechel speaks in voiceover, we see her in a classroom, picking up two sticks of RAM and inserting them into a computer’s motherboard. "At ITT Tech," she intones over quick cuts of her in class, or smiling, or sitting with friends at a coffee shop, "I’m finally in the position where someone can look up to me and ask me for advice," she says. "For the first time in a really long time, I thought, 'Wow, my mom's really proud of me.'"

That’s certainly the message ITT would like to present — a student whose education yields a career she (and her mom) can be satisfied with. But federal regulators have a different idea. Before Christmas, ITT Tech announced that it would likely be sued for misleading students about tuition loans and the success they might enjoy following their education.

Last month, those charges were finally filed. But it wasn’t the Federal Trade Commission (FTC) — the agency that typically acts on behalf of misled consumers — filing them. Rather, it was a new regulatory body called the Consumer Financial Protection Bureau (CFPB). Designed as a kind of police force overseeing predatory financial products and abusive lending in the wake of the Great Recession of 2008-09, the CFPB is trying to establish itself as the nation's foremost federal financial watchdog. It aims to distinguish itself from the FTC by specializing in monetary scams — misleading mortgages, credit cards, and, yes, student loans.

Misleading mortgages, credit cards, and, yes, student loans

The big question, however, is whether this watchdog will use its teeth.

The nonprofit consumer advocate pointed out last year that fines from the FTC tend to be relatively meager: "The amount of money paid by companies charged with deceptive advertising when compared to their revenues appears to be small potatoes." These FTC fines — such as a 22.5 million settlement in 2012 for Google, which had revenues of more than $52 billion that year — amounted to nothing more than "a minor cost of doing business."

Will the CFPB be different? The ITT Tech case is likely to be its first major test.

Perils of profits

ITT Tech is designed to make money as well as educate students. It enrolls only slightly more students than huge liberal arts colleges like Arizona State or Texas A&M, but that still amounts to 70,000-plus people online and on 140 campuses in 38 states. The college’s stock is also traded on the New York Stock Exchange, and its annual revenues exceed $1 billion.

ITT portrays itself as a place for students who want a "technology-oriented" and "career-focused" education. You won’t find an option for an English degree. Students interested in pursuing philosophy, history, or even math or chemistry, need not apply. The goal is to get a job when you graduate; four-year degrees are in programs such as construction management or cybersecurity, and two-year degrees tend toward study areas like "mobile communications technology" or web design.

A school marketing itself as a path toward employment seems reasonable, but it puts ITT Tech in a position of potentially promising too much. Nicole Elam, ITT Tech’s government relations and external affairs officer, acknowledges that students can "misconstrue" the company’s marketing as "promising a job." But she says its recruiters are trained not to promise such things. "We can’t promise anybody that they’ll get employment after they get a degree," Elam notes.

"We can’t promise anybody that they’ll get employment."

It’s exactly that kind of murky territory that’s gotten for-profit colleges in trouble before. In a 2010 report, the Government Accountability Office (GAO) accused for-profit colleges of deceptive marketing and other offenses. Using undercover applicants, GAO claims that recruiters at for-profit schools instructed potential students to "falsify their financial aid forms to qualify for federal aid." Recruiters also "exaggerated undercover applicants’ potential salary after graduation and failed to provide clear information about the college’s program duration, costs, or graduation rate...." The prices of certain programs were also absurdly high. "A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value," the report reads. "However the same certificate from a local community college cost $520."

Last month’s CFPB complaint makes similar accusations about ITT Tech. It claims that ITT recruiters encouraged students to take out expensive loans, misrepresented the salaries students might receive upon graduation, and misled them about accreditation and credit transfers. The complaint also alleges that ITT recruiters used aggressive tactics to enroll students and have them take out loans — private ones through a third party, that students "did not want, did not understand, or did not even realize they were getting."

The CFPB complaint closely parallels the GAO report — but the CFPB can actually fine companies and impose standards and penalties. Will it? And if so, will those penalties matter?


For-profit schools have their supporters. Foremost among these is the Association of Private Sector Colleges and Universities (APSCU). Steve Gunderson, a former Republican congressman and APSCU’s president, says his organization disputes many of the findings in the GAO report. But Gunderson is pragmatic about the need for change in the for-profit college industry.

"At the beginning of the Great Recession, there was a feeling by everyone who got laid off that they had to go back to school and they had to get a new skill," he says. So they went to colleges like ITT Tech. The result: "My sector grew too much, too fast," Gunderson says.

Nearly two-thirds of ITT Tech students were expected to default on their loans

Community colleges — regional, nonprofit schools offering similar programs to those of ITT Tech and other schools — couldn’t support the vast numbers who wanted to enroll, Gunderson says. ITT Tech and others were happy to meet that demand, and enrolled any students they could. But many of those students soon realized their schedules couldn’t accommodate a course load, or they couldn’t afford school, or they simply didn’t want to be in class. So they dropped out. Many defaulted on loans. And for-profit schools were left with statistics that looked very bad: the CFPB complaint says that nearly two-thirds of ITT Tech students were expected to default on their loans as recently as May 2011.

Now, Gunderson says, these schools are in a position where they need to "rightsize" — rethink policies toward open enrollment, and focus on students who "not only want to enroll, but who have the persistence to complete a degree." ITT doesn’t see it that way: Elam says the school has no plans to nix open enrollment.

A cost of doing business

The CFPB complaint is currently just that — a complaint. And ITT Tech, in a press release, denied the allegations, stating that they didn’t coerce students or rush them into unfair loans. "ITT Tech believes the complaint is without merit and we intend to vigorously contest the bureau's theories in court," the release reads.

But even if ITT Tech loses its fight, Matthew R. Hodgman, an English professor at Goodwin College who's written about for-profit colleges, has concerns about any regulator’s ability to fine a company into compliance. He points out that the University of Phoenix — which enrolls about a quarter-million students — was fined nearly $10 million in 2004 on similar charges. The school has taken steps to clean up its act, he says, but that fine was essentially a minor cost of doing business.

Which is why real change might only happen if the CFPB complaint results in ITT Tech admitting to wrongdoing. And, of course, if CFPB uses the case to set strong standards. "I don't think the monetary fine will have any impact on ITT practices," says Bonnie Patten from "What could negatively impact [ITT Tech] are provisions that force them to more honestly and truthfully disclose the facts of their business."

"I don't think the monetary fine will have any impact."

Those facts are these, she says: "It’s more expensive than most nonprofit schools. The credits may not be transferrable. There’s a high likelihood that you’re going to default on your loan. An accurate income statement is that, in the best cases, you’re probably going to make less than $30,000 per year. It’s going to cost you in the range of $44,000 to $88,000. And there’s a high dropout rate."

Patten continues: "I'm not against [for-profit colleges] on a theoretical level. I'm against for-profit colleges deceiving consumers so they can make money."