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ITT Technical Institute Shuts Down After Government Cut Off New Funding
A federal crackdown on for-profit colleges is cutting off a lifeline to the once high-flying industry as the second major school operator in recent years closed Tuesday, potentially leaving taxpayers on the hook for hundreds of millions of dollars in student loans.
ITT Technical Institute, among the nation’s largest for-profit college chains by revenue, abruptly closed more than 130 campuses, forcing more than 40,000 students at campuses in 38 states to begin looking for another school after the government banned it from enrolling new students receiving federal aid. It follows last summer’s liquidation of Corinthian Colleges Inc.
The for-profit college industry has shriveled in recent years, with enrollments of the largest chains plummeting by more than half in the past five years. The pullback came as the government clamped down on aggressive recruiting practices and stricter policies intended to ensure that schools are preparing students for gainful employment.
This industry shakeup is leaving taxpayers with a potentially enormous tab. In addition to the hundreds of millions of dollars in federal loans that could be forgiven for students who attended the now-closed ITT, a new Department of Education plan to forgive loans for defrauded students at for-profit and nonprofit institutions could cost up to $43 billion, according to department estimates.
At ITT, which is operated by ITT Educational Services Inc.,government officials estimated that current and recent students could seek forgiveness on as much as $500 million in federal loans, on par with what they projected when Corinthian Colleges liquidated last summer. The government in June agreed to forgive $171 million in student debt held by former students of Corinthian Colleges so far.
Taxpayers will be on the hook for most of that amount because they are government-backed loans; ITT currently has about $90 million set aside to cover forgiven loans.
In a statement, ITT said: “The damage done to our students and employees, as well as to our shareholders and the American taxpayers, is irrevocable.”
ITT Tech, among the nation’s largest for-profit college chains by revenue, had been facing accusations from its accreditor of chronic financial mismanagement and questionable recruiting tactics. It is also under investigation by more than a dozen state and federal authorities, including the Massachusetts attorney general, the Consumer Financial Protection Bureau and the Securities and Exchange Commission.
ITT said in securities filings that it is defending itself against the allegations and submitted responses to the accrediting body.
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