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ITT Educational Services facing federal scrutiny

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CARMEL, Ind. (AP) — Education company ITT Educational Services Inc. is facing a federal lawsuit over alleged predatory lending, a big drop in its stock price and other woes amid tightening regulatory scrutiny of for-profit colleges nationwide.

The stock price of the Carmel-based school's parent company, ITT Technical Institute, has plummeted 75 percent so far this year. The company's CEO recently announced his resignation, and a potential money-raising deal that would have sold off several of its properties fell through.

Despite those troubles, ITT officials said the national chain has taken steps to meet the demands of federal regulators and the school maintains a stable cash flow.

But education experts and stock analysts said ITT is struggling to ward off the same kind of regulatory crackdown that recently forced the collapse of another for-profit college, California-based Corinthian Colleges Inc.

"What were once reliable moneymakers are now running into trouble," New America Foundation senior policy analyst Ben Miller told The Indianapolis Star (http://indy.st/1nFVwXL ).

ITT's problems come as the Obama administration is working to enact new regulations to protect students enrolled at for-profit colleges from incurring large amounts of loan debt.

Those rules are aimed at certain for-profit college programs, which the U.S. Department of Education has criticized for relatively high-cost degrees that can lead to earnings lower than those of high school dropouts.

What's at stake are the company's large workforce and degree programs that have an enrollment of tens of thousands of students nationally.

"This is pretty much a period of turmoil for the company and the overall industry. They're fighting here to manage this crisis on several different fronts," said Michael Tarkan, a research analyst in Washington, D.C., for the investment firm Compass Point Research & Trading.

ITT is being sued by the federal government over predatory lending allegations. In addition, it has missed its 2013 full year and 2014 first quarter earnings results and a summer deadline for filing its annual financial report with federal regulators.

Those situations have opened ITT to potential sanctions from the U.S. Department of Education, including a cutoff of the federal student aid money that is its lifeblood.

In Indianapolis, ITT employs 620 workers at two campuses, its headquarters and a student support center. About 860 students are enrolled in the metropolitan area and 57,000 nationally, mostly in associate degree programs.

ITT spokeswoman Nicole Elam said the company is working its way through its problems, including exploring other options to sell its properties even as it seeks new leadership to replace Kevin Modany, who recently resigned after seven years in the job.

Elam said company officials are in constant contact with the Department of Education, an agency she said has shown patience toward ITT as it tries to re-audit its books and disclose past-due financial filings.

But she called the proposed new federal regulations "arbitrary and capricious," and said ITT no longer offers some of the programs that would not pass muster, such as visual communications.

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Information from: The Indianapolis Star, http://www.indystar.com

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