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SEC Charges ITT Educational Services With Fraud
mpicpp writes with news that ITT Educational Services, the company that operates for-profit college ITT Tech, has been charged with fraud over its student loan programs. The U.S. Securities and Exchange Commission accuses the company of concealing poor financial performance from its investors.
ITT formed both of these student loan programs, known as the "PEAKS" and "CUSO" programs, to provide off-balance sheet loans for ITT’s students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT’s guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT’s exposure to these programs was much more limited.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT’s guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT’s exposure to these programs was much more limited.
I realize that this article is about private loans, but shouldn't there also be some standard for federally-guaranteed loans too?
SJW's don't eliminate discrimination. They just expropriate it for themselves.
It's telling that when for-profit education screws over INVESTORS then a federal attorney goes after them.
However, when they screw over actual individuals the same groups act like they don't see it and they don't care.
You sure can see where the values lie in the U.S. right now.
I just put in my application to DeVry today!
What standard are you talking about? Education, especially in today's world is paramount to the average person's success, not the few million and billionaires who bypass it is the exception not some new rule.
Government based sudent loans already have the security of never being discharged, and they can take your tax refunds and garnish your wages, therefore there is plenty of security there already without having some sort of credit worthiness standard like other loans have.
When you cant win, ad hominem.
I regret attending that shitty diploma-mill everyday.
Old materials, older equipment. Incompetent staff and overly aggressive recruiters.
Fuck ITT, and fuck all other "schools" just like them
If student loans are available for other privately run schools, such as Stanford, MIT and Yale, why should ITT be any different?
I'm guessing your question wasn't real, but a political comment. Here's the real answer, anyway, which was found using a simple Google search. Yes, there are standards for Federal student aid programs.
"National Security is the chief cause of national insecurity." - Celine's First Law
These weren't federal loans, as far as I can tell from RTFA. In short the allegations say that this is what happened:
1) The private loan market cratered
2) ITT said, "No problem we'll sell loans to ourselves, backed by investors, and we'll guarantee those loans" (see equity backed mortgages, for a similar case study)
3) Lots of loans started to default
4) ITT did math and said "Oh Nos", if we pay off those guarantees it's going to look bad. I know, let's pay those loans ourselves for a bit instead, I'm sure they will start paying again.
5) They didn't start paying again
6) They had to come clean to investors, stock tanks
6) They got caught in the coverup
7) SEC sues, stock tanks somemore
8) (profit)*-1
Min
On the whole, I find that I prefer Slashdot posts to twitter ones because I don't get limited to 140 chars before
Why should it not be eligible for federal student loans — so long as that travesty exists, that is?
A better question may be, why do "federally-guaranteed loans" need to exist in the first place...
Another victim of the government monopoly...
In Soviet Washington the swamp drains you.
"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..."
Exactly. If the question is "Why is higher education so expensive," that is the answer.
"National Security is the chief cause of national insecurity." - Celine's First Law
It is far, far better thing for ITT to defraud investors than students.
How about another question of, are we going to talk about the problem at hand?
These are private loans offered by the school to the students these are not government-backed loans, nor are they loans offered by the government.
The SEC is going after them for things they did to the investment market.
Their major sin is likely be what the do to students.
This seems more telling on Washington than ITT.
Perhaps going after them for the student thing is too close to home for most of the rest of our 'higher' education system.
I guess the best news here is at least somebody is going after them for something.
Thank goodness they did not modify a URL.
ITT and Phoenix are products of the federal loan industry. College was affordable before federal loans. The administrators scream and wail about losing state funding and blame tuition rises on that, but look at the fucking temples to education that are being built. How does a lazy river contribute to education? Climbing walls are nice, but why am I subsidizing federal loans for students to have a better climbing wall than education. I'm not quite at the "pole barn is optimal" level, but half of the staff and the space they occupy here is absolutely useless, and many of them actively, deliberately interfere with education. We could cut the cost of college education in half and get a better product. Don't believe me? Look at or College of the Ozarks. Both are private colleges that don't charge tuition or room and board. Most universities, the one I teach at included, are scams designed to extract the most money possible from the "students" or "customers" as we've been told to call the millennials. Even major pedagogical decisions, like switching from quarters to semesters, are driven by the same thought ...you get more money out of a student who drops out after a semester than a quarter.
Because, it is better for society to have an educated populace, and not just have the children of the wealthy be able to afford to have one.
Another person operating under the delusion they sprang into existence a fully formed human without any of the benefits provided by society.
Did you go to public school? Did you enjoy the benefits of living in a mostly lawful society? Do you drive on public roads? Do you use any public infrastructure like water?
Do you honestly believe you exist through sheer force of your own will and that you did not reap the rewards of your parent society? If so, you should probably seek some therapy, because you're delusional.
Because a society in which only the children of the wealthy can afford an education, and everyone else is relegated to not having one and working in medial tasks .. well, that society is a complete shithole.
So essentially you are saying "I wish to live in a society in which we have the wealthy and the peasants, and if the peasants wish to rise above their station, too damned bad".
You may want to live in that society, but the rest of us don't.
What princely patron paid for your smug self to get an education and rise up from the gutter? Or are you just some rich kid who thinks having daddy pay for your education is the natural order of things?
Lost at C:>. Found at C.
I think we're talking about regional accreditation (as opposed to national accreditation, which is worthless). Any so-called college that isn't regionally accredited should be ineligible to receive money from public student loans. And that should be the minimum standard, of course -- for all I know even the worst regionally-accredited schools might not deserve to be eligible either.
"[Regarding the 'cloud,'] ownership was what made America different than Russia." -- Woz
Ok, I have no issue with that.
When you cant win, ad hominem.
I'm not going to disagree on that, but that doesn't mean that student loans are anywhere near a good answer.
This is my signature. There are many like it, but this one is mine.
"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..." Exactly. If the question is "Why is higher education so expensive," that is the answer.
Universities are at this point, are now citadels of management people:
http://www.washingtonmonthly.c...
http://reclaimuc.blogspot.com/...
Lotsa highly paid MBA types, and their staff.
Research - once upon a time, a lot of research was done at the corporate level. Most has been shifted to Universities now. And even though it brings in research dollars, infrastructure for it has to be built, and government research money is focused on the work at hand, not building the infrastructure.
The education system has been groomed for years that the only acceptable path is the 4 year Bachelor's, perhaps followed by a Masters degree. Any other form of education is considered woefully deficient.
So today, parents look at a college education as grades 13 through 16.
Demand is extremely high.
So why the crisis now?
We're at a wobbly sort of point, where while the demand is still there, but the educational supply cost has outpaced the ability of many if not most people's resources to repay. You graduate with the equivalent of a small mortgage, going for an entry level job in your field (and woe onto you if you are in another field beside engineering) making little, and the University is already badgering you for donations. That is a hellava mess.
The cost of a college education is almost at the point of not being worth it.
The federal loan system is in the mix of problems, but is merely following the lead of University trends, established during WW2 and continued to the present day. The overly managed structure is a more recent phenomenon, as managers in my experience always find that more managers are needed.
I do doubt that the research aspect of present day higher education will ever go away. As for the fact that there are more managers and their support staff now than educators, might be something that can be worked on.
That's a little more than a Fox News soundbite, but despite it all, the federal loan program is more reacting to than creating the problem.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
If student loans are available for other privately run schools, such as Stanford, MIT and Yale, why should ITT be any different?
Because those schools are accredited and ITT isn't.
LOL false dichotomy as always. None of the things you mention happen without government do they ? Oh wait they do
Our government only cares about the cronies, not the electorate.
That's why investors have more power than individuals, investors made the right campaign contributions and bought the politicians.
Well, what are your options?
Government backed student loans.
Convincing private lenders to make a loan to some kid out of highschool with no credit history or job.
Free tuition.
Suck it up if your parents can't afford to pay.
If governments didn't back student loans, there's no way in hell banks would give them. And then you're back to the realization that without government backing of the loans, or free tuition ... a huge amount of people who don't have rich parents would simply never be able to get an education past highschool.
I'd far rather see government working to ensure an educated populace than spending resources advancing the international copyright interests of multinational corporations or acting as a police force for those same corporations.
Society at least gets some benefit from an educated populace.
Until, of course, government gets conned by industry to allow them to bring in cheaper international labor to alter the structure of their beloved market by introducing externalities to tilt the game in favor of corporations.
Lost at C:>. Found at C.
And this is the real crux of the issue - you have to remember a student loan is for a rather large amount of unsecured credit. Anywhere from luxury car loan to low end house mortgage. And at least those two are secured loans because there is an asset associated with it.
Banks aren't stupid. They know a student loan has poor ROI - the interest rate is legislated, you're easily loaning anywhere from $10K to a good chunk of a million dollars and payback only starts years in the future. Oh yeah, and in the end, there's no asset they could repossess and sell to recoup losses.
it's why the government has to give guarantees on the loans as well as limit methods of discharge - there is otherwise no sane monetary reason why any financial institution will loan money for education.
Education should be viewed as an investment; asses the risk vs reward and offer terms. The financial world should be elevating people to their highest potential... guess I woke up with those damn rose colored glasses again!
One high priority should be to create open content textbooks for at least the liberal arts core education. Once completed, that would cut somewhere near a grand per student per year for at least freshmen and sophomores. I would also see grants as being more useful than loans, and perhaps those loans (if needed) should have the lowest rates available, possibly something we'd consider crazy like negative interest or interest-free loans. We should also have greater transparency in how funding is spent, and extra scrutiny should be applied to corporate partnerships, as they are especially ripe for abuse.
Another change I would suggest is to move away from a corporate career focus in most degree programs, instead focusing on personal improvement. Oh, and while we're at it, decimate the military industrial complex spending, as that would give us a lot of extra money to spend.
This is my signature. There are many like it, but this one is mine.
Looking at those websites, it appears that they both serve a sort of missionary purpose. I'm not sure that translates globally. There are people willing to dump money into "saving souls" that they won't dump into lifting up the people around them.
Cheap storage VM.
The reason why nobody learns anything at these for profit schools is that they are scraping the bottom of the barrel for their student body. You can have the best teachers in the world along with first class facilities but if the students are unmotivated it won't make a bit of difference. If you took the students out of ITT and put them into any decent college the vast majority would likely flunk out within a year.
The problem with constantly spending more money on education is that education only works for those who desire to be educated. The best students can get a better education from home taking MOOCs than the poor students will get even with the best instructors.
"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..." Exactly. If the question is "Why is higher education so expensive," that is the answer.
Don't be ridiculous. The loans don't exist because school is prohibitively expensive. I finished school just with the current group of "I can't pay my student loan" cry babies. I paid for all of my education, and have been supporting myself since I was 16 years old. My student loan total for 3.5 years (I graduated early) was $12,000. That included tuition, books, and my apartment minus the costs I paid myself by working throughout school. I received $1000 total in scholarships and did not qualify for grant money. I went to a school that I could afford. A state university program. Without the federally subsidized student loan, I would have been forced to work more, and would have had to spend more time on my degree.
At the time I started school, my girlfriend wanted me to attend the same private school she went to. I applied and was accepted but passed on the program because the tuition alone would have cost me over $30,000 a year. With decreased funding, my state university now charges double what it did when I attended, but your 4 year tuition is still less than 0.75 years at a private university. I have about as much sympathy for those crying about student loan repayment as I have for those people who took out a 5 year ARM on property back in 2008.
"The loans don't exist because school is prohibitively expensive. I finished school"
They apparently didn't teach reading comprehension or logic.
"National Security is the chief cause of national insecurity." - Celine's First Law
Because Stanford, MIT, and Yale graduates are far less likely to end up in default on their loans.
If tuition is free (to state and not private institutions), then the number of students must be limited*. Also the number of programs have to be limited, too. There is absolutely no need for a Gender or Ethnic Studies degree.
*And, of course, that means testing will become more important as colleges take only the best.
But considering that the loans are effectively co-signed by a AAAA organization, the interest rates are outrageous.
But considering that the loans are effectively co-signed by a AAAA organization, the interest rates are outrageous.
What part of "you cant repossess an education" therefore rates compensate the lender for that additional risk don't you understand?
If the loan delinquency rate is the criteria, there are over 600 FSA qualified institutions with worse rates than ITT, including a lot of public community colleges.
"National Security is the chief cause of national insecurity." - Celine's First Law
Because, it is better for society to have an educated populace, and not just have the children of the wealthy be able to afford to have one.
Did you go to public school? Did you enjoy the benefits of living in a mostly lawful society? Do you drive on public roads? Do you use any public infrastructure like water?
It is absolutely better to have an educated informed citizenry, especially in a democracy that requires informed decisions through voting to function properly. I think very few disagree with that.
What I disagree on is the need for loans. Loans are all about making money for the financial industry and even the federal government (used by politicians to "balance the budget" on some of their terrible decisions with war, social security, tax breaks, etc.). We should all agree that education is a fundamental investment in our nation, and pay for it out of taxes. Anyone that wants to go and displays aptitude (perhaps some sort of exam, or maybe let anyone in under probation for a first semester or two, no retaking classes on government dime if you fail -- the exact specifics need to be worked out) should be able to go, FOR FREE, because it is an investment in our nation.
There have been analyses before such as this article (though I have seen others as well). Essentially -- the US Gov already pays over $70 billion in loan guarantees and tax incentives for tuition... when we could cut out the middle man financial market entirely and simply pay the $60 billion in tuition directly. Everyone goes to school free, AND it actually reduces federal spending. Holy crap is that a win-win.
Any politician that proposes any continuation of loans as if it is a good thing is out of touch with reality and possibly trying to support corporate overlords. Let's dump them next major election.
Because Stanford, MIT, and Yale graduates are far less likely to end up in default on their loans.
They are also more likely to actually graduate, and when they do, the diplomas are actually worth something. ITT, and other diploma mills, dupe poorly prepared students into taking out loans, handing it over to the school, and then have little concern for whether their students learn anything, earn any diploma or credential, and have any prospect for a higher income that can justify the loan repayments.
Sallie Mae needs to be scaled back, and the loans should only be available to students that are prepared to learn, majoring in something with tangible value, and attending an institution with a high graduation rate and reasonable tuition.
When I review resumes, if I see ITT (or Heald, DeVry, Univ of Phoenix) listed, I toss it in the trash. I have learned that none of their graduates are worth interviewing. These institutions are worse than worthless.
This is an absolutely fantastic idea. :)
Of course, there is no way the lobbyists for the publishers would every allow it to happen. :(
Ozarks is a bit worse off, at only $427M for 1300 students. They're only 4x better off than we are. Given that their students are required to work for the college, they can make up that difference.
So in order to manage to do what they can, all we need to do is raise either a ~billion dollars (we have more students so will need more cash) and have all of our students work, or raise ~2 billion and we can avoid that.
Easy!
"Seven Deadly Sins? I thought it was a to-do list!"
I believe federal student loans should only allow payouts to public (i.e. state) 2-year and 4-year institutions.
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
We have to meany people going to college and to meany tech / trade schools roped into the 2-4+ year system. Places Like ITT can be better off by not giving out degrees.
The part where the U.S. government is on the hook for the default, not the lender. Believe it or not, the U.S. government is still AAAA rated.
By what standard? Cost of college has always been high. Federal loans made college more accessible. If your theory is based on generated demand then you have discounted the fact that a seat not filled by a in-state resident will be filled by an out-of-state or foreign student who pay more tuition anyway.
The amount of student loan debt is at an all time high and I blame allowing student loans to be used to finance attending for-profit "educational" companies that amount to little more than $40K paper mills. The reason the default rate is high for those institutions is because the employers already understand that those "degrees" aren't worth the paper it is printed on. This doesn't stop the "institution" from insinuating (or outright stating) that you would be guaranteed a job.
Make it to where only public (i.e. state owned) 2-year and 4-year institutions can receive federal student loans and we will see both the rate of default and the number of debtors lower.
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
It is A criterion. Graduation rate and the usefulness of the resulting degree also factor in. Value for money plays a role as well.
university's don't like part time / Nights-week ends only students and places like ITT and UOFP fill that gap.
"It is A criterion"
No, it isn't. I've already provided a link elsewhere here which spells out the requirements to be an FSA eligible institution. The rate of default is immaterial.
"National Security is the chief cause of national insecurity." - Celine's First Law
It is not a criterion that they use, I never said it was, nor did anyone in this thread. Rather I advocate it as a criterion among others.
I think you also missed that states around the US have been reducing their support for universities. This was especially true after the depression started in 2008.
As for research, the private sector has been smaller than the public sector in research funding since the 60's, and federal research funding hasn't really changed as a portion of total research funding, so I really don't think that makes sense as a cause, except in that the government has been reducing its research spending.
Also, the loan program helps add to the problem. If it weren't for the federal loan program, it would be far, far harder for schools to charge students the tuition they charge, so either they would lower their tuition, educate fewer students, or manage to lobby their states to invest more in the public university system. Loans aren't the sole cause, but they're definitely a contributing factor of high tuition.
The expected total expenditures for a student at my university when I graduated back in 2003 were in the range of $19,000 per year in today's dollars. Estimated total costs for students at the same university in the upcoming school year are about $35,000.
There really is no comparison here. School is vastly more expensive today than it was even 15 years ago. And that is tremendously unfair to current students.
Which is an excellent explanation for why student loans are the wrong way to finance education.
Codger here..
In the late 70s, the cost to attend the Univ of California (which is not a third rate college) was about $500/yr in fees and $155/month for the dorms. Figure another $200 for textbooks for the year. that's about $2500/year total. Minimum wage was $2.50/hr. So, you're not going to pay for a year's college by working a minimum wage job (1000 hrs) over the summer, but a "twice minimum wage" job would be plausible (500 hrs: 170 hrs/mo means about 2.5 months.. summer). As would a part time job during the year. I know MANY people who did this (including my wife). Not to mention that there were scholarships and need based campus jobs of one sort or another.
Compare today. UCLA is 34k/yr in fees, dorms, etc. Minimum wage is $9/hr. just under 4000 hours.
OTOH, Most of the cal state universities run about 20-25k/yr "all in".. that's still a lot more than 1000 hrs (about 2780, a fair amount more than a year of full time work at minimum wage)
The expected total expenditures for a student at my university when I graduated back in 2003 were in the range of $19,000 per year in today's dollars. Estimated total costs for students at the same university in the upcoming school year are about $35,000.
There really is no comparison here. School is vastly more expensive today than it was even 15 years ago. And that is tremendously unfair to current students.
Is that all expenses or just tuition expenses? The university has no control over outside expenses.
Simple solution to this whole mess. Colleges should underwrite any student loan that has any taxpayer backing. If they can afford to support defaulted loans from 10,000 Gender Studies graduates, more power to them.
Colleges are the only industry that has no direct interest in the success of their customers, they get paid no matter the outcome. The Mortgage secondary market use to be like that, see 2008 financial crash for more details.
The university provides an estimate of total living expenses. Tuition itself increased from something in the range of $6,000 to about $15,000. Obviously personal situations can vary, and if your parents live close to the university it can be a lot cheaper, but local living costs are usually a large part of the cost of higher education. This doesn't include books or medical insurance.
Also, the loan program helps add to the problem. If it weren't for the federal loan program, it would be far, far harder for schools to charge students the tuition they charge, so either they would lower their tuition, educate fewer students, or manage to lobby their states to invest more in the public university system. Loans aren't the sole cause, but they're definitely a contributing factor of high tuition.
No doubt. Its a worm ouroboros, because each aspect follows the other. If loans were not easy to get, if parents were not considering their children failures if they didn't have a bach - and more recently a masters, if Universities didn't place more emphasis on research and weren't drowning in middle managers and bean counters - it might not be the way it is now. Its a recipe that isn't sustainable
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
I'm skeptical that the research angle is that big of a deal. The focus on research harms adjunct faculty greatly and student education slightly, but I don't think it really has a negative impact on tuition cost.