ITT Technical Institute Shuts Down All 130 Campuses After SEC Fraud Charges and Federal Aid Cutoff, Stranding 35,000 Students

ITT Technical Institute, one of the nation’s largest for-profit college chains operating more than 130 campuses across the United States, announced on September 6, 2016, that it would immediately cease operations and close all locations, stranding approximately 35,000 actively enrolled students and terminating 8,000 employees without notice. The abrupt shutdown came days after the Department of Education banned ITT from enrolling new students using federal financial aid and required the company to post additional surety funds totaling $247.3 million to cover potential liabilities—requirements triggered by a 2015 Securities and Exchange Commission lawsuit charging ITT’s CEO and CFO with defrauding investors by concealing tens of millions of dollars in impending loan defaults while making secret payments to delay defaults and inflating the company’s financial health. The collapse of ITT Tech—which had operated for over 50 years and had taken in more than $7 billion in federal student aid in its final decade alone—exposed a business model based on charging students $45,000-$77,000 for associate and bachelor’s degrees while providing education so inadequate that the vast majority of graduates could not find employment sufficient to repay their loans, leaving taxpayers to absorb over $500 million in defaulted debt while ITT executives extracted millions in compensation before the company’s inevitable failure.

ITT Technical Institute had operated since 1969, growing significantly during the 1990s and 2000s as federal student aid became increasingly available and as for-profit colleges developed aggressive marketing and recruitment systems to capture that aid. By the mid-2000s, ITT operated more than 130 campuses in 38 states, offering associate and bachelor’s degrees in fields like information technology, electronics, drafting and design, criminal justice, and business administration. The company marketed itself as providing practical career-focused education superior to traditional colleges, promising students that ITT’s programs would lead to well-paying technical jobs that would justify the substantial tuition costs and student debt. Like other major for-profit chains, ITT derived approximately 70-80 percent of revenue from federal Title IV student aid, making federal loans and Pell Grants essential to the business model.

However, ITT’s actual educational quality and student outcomes were dramatically worse than the company’s marketing promised. ITT charged approximately $77,000 for a four-year bachelor’s degree and $45,000 for a two-year associate degree—costs substantially higher than comparable programs at community colleges which typically charged $5,000-$10,000 for associate degrees and $20,000-$30,000 for bachelor’s degrees at public universities. Despite the premium pricing, ITT graduates often found that employers did not recognize or value ITT credentials, that the skills taught in ITT programs were outdated or inadequate for actual industry jobs, and that they could not find employment that would allow them to repay the substantial student loans they had incurred. Many ITT students would have been better served by community college programs costing a fraction of ITT’s tuition and providing equivalent or superior education, but ITT’s aggressive marketing and recruitment tactics steered students toward the high-cost programs by making false promises about job prospects and career advancement.

The Securities and Exchange Commission’s fraud case against ITT executives exposed the systematic deception at the heart of the company’s operations. In May 2015, the SEC filed charges against ITT Educational Services, CEO Kevin Modany, and CFO Daniel Fitzpatrick, alleging that between 2007 and 2010 the executives engaged in a fraudulent scheme to conceal from investors the massive impending defaults on student loans that ITT had guaranteed. ITT had created its own private student loan programs—PEAKS and CSO—to provide additional financing to students who had exhausted federal student aid but still could not cover ITT’s high tuition costs. Under these programs, ITT guaranteed the loans, meaning the company would have to repay lenders if students defaulted, creating substantial contingent liabilities on ITT’s balance sheet.

The SEC alleged that as default rates on these private loans began to spike in 2007-2010, ITT executives realized that the company faced hundreds of millions of dollars in losses from the loan guarantees, but rather than publicly disclosing these losses to investors, the executives engaged in a scheme to artificially delay defaults by making secret payments on delinquent student accounts. ITT would identify student loans that were approaching 90 days delinquent—the threshold for default—and would make payments from corporate funds to bring the accounts current, temporarily preventing defaults that would trigger ITT’s guarantee obligations. These secret payments allowed ITT to avoid reporting the true extent of its loan guarantee liabilities while continuing to report positive earnings to investors and to maintain stock prices that enriched executives through stock-based compensation.

The SEC found that Modany and Fitzpatrick knew that the loan programs were experiencing severe problems with student defaults, knew that the defaults would eventually force ITT to recognize hundreds of millions in losses, but deliberately concealed this information from investors while continuing to assure investors that the loan programs were performing well. The executives’ fraud allowed them to sell their own ITT stock at inflated prices before the company’s problems became public, and allowed ITT to continue recruiting students into programs financed by loan programs that the executives knew were failing. When the loan defaults could no longer be concealed and ITT had to recognize the losses, the company’s stock price collapsed, wiping out billions of dollars in shareholder value while executives who had sold stock early escaped much of the loss.

The SEC fraud charges were civil rather than criminal, and in July 2018 Modany and Fitzpatrick settled the charges by agreeing to pay penalties of $200,000 and $100,000 respectively and accepting five-year bans from serving as officers or directors of public companies. Neither executive admitted any wrongdoing despite the SEC’s findings that they had deliberately deceived investors. The modest financial penalties—totaling just $300,000 for fraud that concealed hundreds of millions of dollars in losses—represented a tiny fraction of the compensation the executives had received from ITT during the years of fraud, effectively allowing them to retain their ill-gotten gains while paying only token penalties. The five-year officer ban prevented them from immediately moving to other publicly-traded companies but did not prevent them from working in education or from enjoying the wealth they had extracted through fraud.

The SEC case focused on securities fraud against investors, but the underlying loan default problem revealed even more fundamental fraud against students and taxpayers. The reason ITT’s private loan programs experienced catastrophic default rates was that ITT students could not afford to repay the loans because they were not finding employment with earnings sufficient to make loan payments. High default rates indicated that ITT’s programs were not delivering the job outcomes that the company promised during recruitment, meaning students were paying $45,000-$77,000 for credentials that did not provide any labor market advantage over non-college credentials or over much cheaper community college degrees. ITT was enrolling students in programs that the company should have known would not lead to jobs that would justify the debt, but ITT continued recruiting because federal student aid and ITT’s own loan programs provided immediate revenue to the company regardless of whether students ever benefited.

Former ITT employees and students provided detailed accounts of the deceptive practices used to recruit students and maximize loan disbursements. Recruiters were trained to use high-pressure sales tactics, to misrepresent job placement rates and graduate earnings, to downplay the cost of programs by focusing on monthly loan payments rather than total debt, and to rush students through enrollment before they could research alternatives or carefully consider whether ITT was appropriate for their goals. Students reported being told that ITT graduates had 90-95 percent placement rates in high-paying technical jobs, when in fact many graduates could not find any employment related to their programs and those who did find jobs often earned wages only slightly above minimum wage, far below what would be needed to repay $45,000-$77,000 in student debt.

ITT also engaged in credit manipulation schemes to help students qualify for loans they could not afford. Former employees reported that ITT would advise students to dispute negative items on their credit reports specifically to temporarily boost credit scores high enough to qualify for ITT’s private loans, even when the disputed items were legitimate debts. This credit manipulation allowed students with poor credit histories—often indicating they were already struggling with debt—to take on tens of thousands of dollars in additional ITT loans that they had virtually no ability to repay. The practice demonstrated that ITT was not screening students to ensure they could afford programs but rather was coaching them on how to circumvent lending standards so that ITT could capture tuition revenue regardless of the consequences for students.

The Department of Education’s August 2016 sanctions that immediately preceded ITT’s closure were based on findings that ITT had failed to demonstrate financial responsibility and had engaged in practices that put students at risk. The Department banned ITT from enrolling new students using federal financial aid and required ITT to post $247.3 million in additional surety to cover potential liabilities from school closures, loan defaults, and refunds to students if ITT failed. These requirements were financially impossible for ITT to meet given the company’s deteriorating financial condition, and ITT immediately announced it could not comply and would have to cease operations.

ITT’s September 6, 2016 closure left approximately 35,000 students enrolled mid-semester without warning. Students attending classes one day arrived the next day to find campus doors locked and closure notices posted, with no advance notification that would have allowed them to complete terms in progress or to arrange for transfers to other institutions. The timing of the closure—just weeks into the fall semester—was particularly harmful because students had just paid for classes and had just received their federal aid disbursements, meaning they had incurred new debt for a semester they could not complete. Many students were close to graduation and faced the choice of attempting to transfer to other institutions—often finding that other schools would not accept ITT credits due to quality concerns—or simply abandoning their studies after investing months or years and tens of thousands of dollars.

The approximately 8,000 ITT employees who were terminated when the company closed also received no meaningful advance warning, losing their jobs abruptly without severance pay or benefits continuation. While ITT portrayed itself as the victim of government overregulation and claimed that the Department of Education’s sanctions forced an unjust closure, the reality was that ITT had been operating an unsustainable business model based on systematic fraud that was always going to collapse once regulatory enforcement reached a threshold that prevented continued fraud. The damage to employees who lost jobs could have been minimized if ITT had undertaken an orderly wind-down over months rather than an abrupt collapse, but such a wind-down would have required honest acknowledgment of the company’s problems rather than continued fraud until the very end.

Days after the closure announcement, on September 16, 2016, ITT Educational Services filed for Chapter 11 bankruptcy protection, reporting assets and liabilities both in the range of $500 million to $1 billion. The bankruptcy estate would prove inadequate to provide any meaningful restitution to defrauded students. While government agencies and former students would eventually win legal judgments and settlements totaling over $1.5 billion against ITT, those judgments could not be collected from a bankrupt company with minimal remaining assets. The valuable assets ITT possessed—physical campuses and equipment—had little value once the company ceased operations, and the ITT brand name was worthless or actually negatively valued given the fraud revelations and closure. The bankruptcy illustrated a common pattern in for-profit college fraud: executives extract wealth during years of fraudulent operations, then when fraud is exposed and the company fails, the corporate bankruptcy shields both the company and the executives from having to compensate victims.

Over the decade before closure, ITT had taken in more than $7 billion in federal student aid—taxpayer money that flowed to the company through students who were often defrauded about job prospects and who often defaulted on their loans when they could not find employment. The $7 billion represented a massive transfer of public funds to ITT’s executives and investors with minimal educational value delivered in return. When ITT students defaulted on their federal loans—which they did at rates far higher than students at community colleges or public universities—taxpayers absorbed the losses, meaning taxpayers paid twice: once through the initial student aid that went to ITT, and again through the defaulted loans that taxpayers had to write off. ITT’s business model was essentially a mechanism for extracting public funds while delivering minimal value, with students as the intermediaries who bore the debt while ITT took the revenue.

In the years following ITT’s closure, former students organized to demand loan forgiveness, arguing that they had been defrauded by ITT’s false promises about education quality and job prospects and that they should not have to repay loans for credentials that were worthless. The borrower defense to repayment process allowed students to apply for loan forgiveness based on school misconduct, but processing of these applications was painfully slow, particularly during the Trump Administration when Secretary of Education Betsy DeVos blocked borrower defense relief and granted only partial forgiveness even when fraud was proven. Tens of thousands of ITT students submitted borrower defense applications and then waited years in limbo, continuing to make loan payments or suffering default consequences while their applications sat unprocessed.

In 2022, a settlement in the Sweet v. Cardona lawsuit finally provided a path to relief for ITT students. Former ITT students received priority in the settlement, which established that borrower defense claims from students at schools where fraud was widespread would be presumptively approved rather than requiring individual fact-finding. ITT was one of 153 institutions included in the settlement, and over 200,000 ITT borrowers ultimately received over $500 million in loan forgiveness under the settlement and related borrower defense approvals. Additionally, ITT students who were enrolled at the time of the 2016 closure were eligible for automatic closed school discharge of their federal loans, providing relief to the 35,000 students who were stranded mid-semester.

However, even the loan forgiveness achieved in 2022 did not make ITT students whole. Students who had made loan payments for years before receiving forgiveness did not receive refunds of those payments, meaning they had paid tens of thousands of dollars for worthless credentials. Students who had used private loans to attend ITT—including the predatory PEAKS and CSO loans that ITT itself had originated—did not receive forgiveness of those private debts even when their federal loans were cancelled. Students who had defaulted on ITT loans before forgiveness was granted had already suffered years of credit damage, wage garnishment, and tax refund seizures that were not remediated. And the opportunity costs of time spent in ITT programs that could have been spent in legitimate education or in building careers were never recovered.

The ITT closure, coming just over a year after Corinthian Colleges collapsed, marked a turning point in public understanding of for-profit college fraud. The back-to-back failures of two of the largest for-profit chains, both involving systematic fraud and both leaving tens of thousands of students stranded with worthless credentials and unpayable debt, demonstrated that the problems were not isolated to a few bad actors but were endemic to the for-profit education business model. Media coverage increasingly focused on the systematic nature of for-profit fraud, the regulatory failures that had allowed it to continue for decades, and the need for structural reforms beyond case-by-case enforcement.

However, the for-profit education industry’s response was not to reform practices but to intensify lobbying for regulatory relief. The sector invested heavily in supporting Trump’s 2016 presidential campaign and in lobbying the incoming Trump Administration, successfully securing the appointment of Betsy DeVos as Secretary of Education despite her financial conflicts of interest from investments in for-profit education companies. The DeVos Education Department would go on to repeal virtually all Obama-era accountability regulations, block borrower defense relief, hire former for-profit college executives to senior positions overseeing the industry, and actively oppose efforts to hold for-profit colleges accountable for fraud. This regulatory capture ensured that the lessons of the ITT and Corinthian collapses did not translate into meaningful reforms during the Trump Administration.

ITT’s fraud also illustrated the ineffectiveness of accreditation as a quality control mechanism. ITT had been accredited by the Accrediting Council for Independent Colleges and Schools (ACICS), one of the national accreditors recognized by the Department of Education to certify institutional quality for federal aid eligibility. ACICS continued to accredit ITT despite mounting evidence of fraud, poor student outcomes, high default rates, and regulatory problems, only moving to withdraw accreditation in 2016 when ITT’s collapse was already inevitable. The Department of Education ultimately withdrew recognition of ACICS as an accreditor in 2016 based on findings that ACICS had failed to maintain adequate standards and had accredited numerous failing institutions, but the Trump Administration later reversed this decision and reinstated ACICS, illustrating the political capture of the accreditation system.

For the students who attended ITT, particularly those who completed programs before the closure, the experience of discovering that their credentials were worthless in the job market was devastating. Many students had been first-generation college students who believed that completing a degree would provide career advancement and financial stability for their families. They had worked hard, attended classes while often working full-time jobs and caring for families, completed degree requirements, and graduated believing they had achieved a significant accomplishment. The discovery that employers did not recognize or value ITT degrees, that the jobs ITT had promised did not exist or were not available to ITT graduates, and that they had been systematically defrauded constituted both a financial disaster and a psychological trauma. Students who believed they had failed to find jobs despite doing everything right eventually learned that they had been set up to fail by a company that had knowingly sold them credentials it knew to be worthless.

The ITT closure also exposed the predatory targeting of military veterans and service members. Like other for-profit colleges, ITT had aggressively recruited veterans because GI Bill benefits counted toward the 90/10 rule’s requirement that for-profit colleges obtain at least 10 percent of revenue from non-Title IV sources. ITT employed military veterans as recruiters specifically to target other veterans, exploiting bonds of trust and service to steer veterans toward expensive ITT programs rather than toward the free or low-cost public college options typically available under GI Bill benefits. Veterans who used their one-time GI Bill benefits to attend ITT and who then discovered their ITT credentials were worthless had lost a crucial benefit that they had earned through military service, leaving them without the educational opportunities that the GI Bill was supposed to provide.

The inadequacy of the civil penalties against ITT executives Modany and Fitzpatrick—just $300,000 total for fraud that harmed tens of thousands of students and cost taxpayers hundreds of millions of dollars—illustrated the systemic problem of executive impunity in for-profit education fraud. The executives had received millions in compensation during the years they ran ITT fraudulently, meaning the SEC penalties amounted to a tiny fraction of their ill-gotten gains. The five-year ban from serving as corporate officers prevented them from immediately taking similar positions but did not prevent them from enjoying the wealth they had accumulated through fraud, from working as consultants or advisors in education or other industries, or from eventually returning to corporate leadership after the ban expired. The absence of criminal prosecutions meant they faced no risk of incarceration despite orchestrating fraud that devastated tens of thousands of lives.

The broader fiscal impact of ITT’s fraud on taxpayers was staggering. The $7 billion in federal student aid that ITT received in its final decade represented taxpayer funds that could have been invested in community colleges, public universities, job training programs, or other educational initiatives that actually served students effectively. Instead, those funds were transferred to ITT’s investors and executives while delivering little or no educational value. The additional cost of loan defaults and loan forgiveness—likely exceeding $1 billion—represented further taxpayer losses. The total cost to taxpayers of allowing ITT to operate for decades while systematically defrauding students likely exceeded $8-9 billion, making it one of the most expensive regulatory failures in higher education history.

The ITT case demonstrated that large-scale for-profit education fraud could operate in plain sight for decades, could harm hundreds of thousands of students, could extract billions from taxpayers, and could ultimately result in corporate collapse that left executives wealthy and unpunished while students bore all the costs. The case illustrated the need for preventive regulation that stops fraud before it harms students rather than enforcement that comes only after collapse, the need for individual criminal accountability for executives who orchestrate fraud, and the need for comprehensive student relief that makes victims whole rather than providing partial loan forgiveness years after the harm. The failure to achieve these systemic reforms after ITT’s closure meant that the same patterns of fraud continued at other for-profit colleges, continuing to harm new cohorts of students while enriching executives and investors at taxpayer expense.