On Thursday the Obama Administration made a stunning announcement that could put one of the largest for-profit college chains in the U.S. out of business.
ITT Technical Institute currently has about 43,000 students nationwide, and it now stands accused by its accreditor of chronic mismanagement of its balance sheet and shady recruiting tactics. The school is also currently under investigation by state and federal agencies.
The Education Department said Thursday that did not have faith in ITT’s ability to survive the ongoing scrutiny and decided to ban the school from accepting new students who use federal grants and loans to finance their post-secondary education.
To put it into greater perspective, last year federal aid comprised of 68% of ITT’s $850 million revenue.
ITT will still be allowed to collect federal funding for its current students, however, without that vital source of income for future students the company will most likely be forced to close most, if not all, of its 130 U.S. campuses.
It is also reported that private lenders have reduced the number of loans made to students enrolled at for-profit schools since the recession.[ad3media campaign=”689″ youtube=”undefined”]
This latest action by the Obama administration is part of a larger crackdown on the for-profit college industry, which is often accused of enrolling students using deceptive marking after which students go in debt thousands of dollars for a low-quality education.
Currently, ITT students who have either graduated or dropped out from the institute stand the most to gain from this decision. They may qualify for loan forgiveness under a little-known rule called defense to repayment, which refers to an obscure statute in the U.S. Higher Education Act, passed in 1965.
According to that act, the Department of Education can specify “acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan.”
“The most optimistic scenario would be millions of students who have the possibility of claiming defense to repayment,” said Luke Herrine, legal coordinator for Debt Collective.
In the meantime, the process for requesting a loan discharged under the defense to repayment provision is rather lengthy and complicated; it’s unclear if the administration will take any further steps to make the process easier.
Click here for more guidance on how former ITT students can request for a loan discharge under the defense to repayment provision.