WASHINGTON, DC – Today, Congresswoman Jackie Speier (D-San Francisco/San Mateo counties) sent a letter to Secretary of Veterans Affairs Robert A. McDonald, urging him to suspend VA payments to schools run by ITT Educational Services, a for-profit college company that has engaged in deceptive and predatory lending practices. On May 15, 2015, the California Department of Veterans Affairs (CalVet) suspended ITT from qualification for VA benefits, and Speier’s letter asked the U.S. Department of Veterans Affairs (VA) to follow suit.
“CalVet has moved quickly and responsibly to make sure ITT can no longer take advantage of our veterans,” said Speier. “Now it’s time for the federal government to do its job. Stop rewarding schools that only teach their students one lesson: If you’re lucky enough to graduate, your empty degree is only worth a lifetime of unforgivable debt. The writing is on the wall. We can’t just wait for ITT to collapse, leaving taxpayers to foot the bill as Corinthian did. We must be proactive to save our veterans and taxpayers from this dangerous and predatory company.”
ITT is one of the largest operators of for-profit colleges in the United States. The company has more than 140 institutions in 39 states, as well as an extensive online teaching operation. Its schools have been plagued by large cohort default rates (CDRs), which are nearly twice the national average. From 2009 to 2010, 45 ITT schools had a higher CDR than their graduation rate. The students become saddled with unforgivable debt, and their inability to repay those loans ruins their future job prospects while harming taxpayers who are saddled with the bill. Last week, Congresswoman Speier sent a letter to the Department of Education, asking them to investigate ITT. The Securities and Exchange Commission and the Consumer Financial Protection Bureau currently have pending charges against ITT related to its predatory lending practices.
“I am writing to strongly urge the U.S. Department of Veterans Affairs (VA) to suspend approval of VA GI Bill benefits for tuition and fees at ITT Educational Services (ITT) schools,” Speier’s letter stated. “This for-profit college company has engaged in deceptive and predatory lending practices, pushing students into high-interest loans they know cannot be repaid, at vast taxpayer expense. … I ask that you move quickly and responsibly on this urgent matter.”
May 21, 2015
The Honorable Robert A. McDonald
Secretary of Veterans Affairs
U.S. Department of Veterans Affairs
810 Vermont Ave. NW
Washington, D.C. 20420
Dear Secretary McDonald:
I am writing to strongly urge the U.S. Department of Veterans Affairs (VA) to suspend approval of VA GI Bill benefits for tuition and fees at ITT Educational Services (ITT) schools. This for-profit college company has engaged in deceptive and predatory lending practices, pushing students into high-interest loans they know cannot be repaid, at vast taxpayer expense. The California Department of Veterans Affairs (CalVet) already took action on May 15, 2015 to suspend ITT from qualification for VA benefits. Continued inaction at the federal level will harm students in other states who continue to take out loans on a worthless education and taxpayers who foot the expense. I ask that you move quickly and responsibly on this urgent matter.
ITT is one of the largest operators of for-profit colleges in the United States. The company has more than 140 institutions in 39 states, as well as an extensive online teaching operation. Its schools have been plagued with large cohort default rates (CDRs), which are nearly twice the national average. In fact, from 2009 to 2010, 45 ITT schools had a higher CDR than their graduation rate. These students become saddled with unforgivable debt, and their inability to repay it ruins them and their future job prospects while harming taxpayers who are saddled with the bill.
In 2010, ITT reported that 65.9 percent of its revenue came from federal aid programs. Only two years later, this figure rose to 80 percent of their revenue. While they are ostensibly still 10 percent below the limit set under the “90-10 Rule,” which requires for-profit colleges to receive no more than 90 percent of their revenue from federal student aid programs, a large proportion of the remaining 20 percent of private loans were made through predatory lending programs run by ITT Educational Services. These practices have led to charges filed by multiple federal agencies.
As you have likely seen, CalVet took action last Friday, ordering the 15 ITT campuses in California to stop enrolling new or returning students who plan to fund their educations with GI Bill benefits. CalVet issued the suspension notice to ITT because the chain failed to submit audited financial statements required by the Securities and Exchange Commission (SEC) and U.S. Department of Education (ED). If ITT does not produce the required financial documents by July 13, its authorization as a VA provider in California will be withdrawn and students will no longer be able to use GI benefits to pay for classes at these campuses. This is the kind of quick and decisive action that I would like to see taken by the VA as well as ED, assuming each department has the authority it needs.
The SEC filed charges on May 12, 2015 alleging that the CEO and CFO of ITT Educational Services covered up ballooning loan obligations stemming from the company’s “PEAKS” and “CUSO” loan programs. These programs provided zero-interest loans to new students as “temporary credit,” which had to be paid in full at the end of the student’s first academic year. When students could not fulfill this debt obligation, ITT then steered students into new high-interest loans to repay that first-year debt and begin the second-year payment.
ITT created these predatory lending programs using private money – for PEAKS it was private investors forming a trust, for CUSO it was a group of credit unions – to avoid disqualification for federal funding under the “90/10 Rule.” To attract investors, ITT guaranteed repayment of these loans. With their high CDRs, ITT began to run up against its loan obligations. According to a government report, ITT Tech internally projected a 64 percent default rate for private loans in 2011, meaning they made these loans knowing a majority of borrowers would be unable to pay. As the SEC alleges, “[r]ather 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.” In reality, ITT guaranteed these loans, and will pay the price for their high CDRs.
ITT Educational Services’ legal troubles aren’t recent news. The Consumer Financial Protection Bureau (CFPB) filed a lawsuit against ITT in early 2014, accusing the chain of predatory student lending related to their “temporary credit” programs. With this history of predatory lending and high CDRs, the VA has a responsibility to step in to protect veterans and taxpayers.
As the official responsible for overseeing the implementation of the GI Bill benefit program, I call upon you to:
1. Immediately suspend VA benefit qualifications for ITT schools nationwide.
2. Prepare resources for students who could be impacted by these suspensions to ensure our veterans can continue to pursue their education.
3. Elaborate on VA plans to actively investigate other for-profit programs for possible suspension in the future, and how we can best serve those students.
Thank you for your speedy attention to this matter. I look forward to your response.
Member of Congress