ITT Educational Services ___________________________________
Introduction
ITT Educational Services Corporation, Incorporated (“ITT”) is one of the largest for-profit
education companies, and offers primarily 2-year and some 4-year degrees in a number of subjects.
Like many others in the sector, in recent years ITT has experienced significant growth in student
enrollment, Federal funds collected, and profit realized. While the company student withdrawal rates
are lower than many large publicly traded for-profit education companies, ITT’s student loan default
rates are higher than most. Additionally, ITT offers some of the most expensive programs of any forprofit college, forcing many students to borrow the maximum available Federal aid and to take on
additional private debt.

Company Profile
ITT is a publicly traded for-profit educational institution headquartered in Carmel, IN. ITT
operates a total of 145 campuses in 35 States, along with an online division, and offers Associate,
Bachelor’s and Master’s programs in electronics, drafting and design, criminal justice, business,
information technology, health sciences, and nursing.2062 Approximately 85 percent of ITT students are
enrolled in associate programs.2063 The largest programs at ITT are IT computer network systems,
computer and electronics engineering technology, and computer drafting and design, which account for
75 percent of all students.2064
ITT operates two brands, ITT Technical Institute (“ITT Tech”), which accounts for 99 percent of
the company’s students, and Daniel Webster College, New Hampshire-based with approximately 600
students. ITT Tech campuses are accredited through a national accreditor, the Accrediting Council for
Independent Colleges and Schools (ACICS). Daniel Webster College is regionally accredited by the
New England Association of Schools and Colleges, Inc. (NEASC).
ITT was founded in 1946 and has been publicly traded since its 1994 initial public offering
(IPO). Large institutional investors in the company include Blum Capital Partners (which owns 15.8
percent of the company), Wellington Management Company (13.99 percent), Select Equity Group (6.5
percent), and Providence Equity Group (5.6 percent).2065
The current chairman and chief executive officer of ITT is Kevin Modany. Modany has served
as chairman since February 2008, and as CEO since April 2007. He also served as president from April
2005 through March 2007.

2062

For list of campuses see http://www.itt-tech.edu/campus/ (Accessed May 4, 2012).
ITT Educational Services, “ITT Educational Services at Robert W. Baird and Co. Inc. Business Solutions Conference,”
Lexis Nexis, February 29, 2012.
2064
ITT Educational Services, “ITT Educational Services at Robert W. Baird and Co. Inc. Business Solutions Conference,”
Lexis Nexis, February 23, 2011.
2065
Blum Capital Partners (S13D Filed 2/28/2012), Wellington Management Company (S13G Filed 2/14/2012), Select
Equity Group (S13G Filed 2/14/2012), and Providence Equity Group (S13G Filed 2/13/2012).
2063

515

 Enrollment at ITT Educational Services, Inc., 2000 10
100,000

88,004

90,000

79,208

80,000
70,000

61,556
60,000

53,675
48,155

50,000

42,183
40,000
30,000

28,639

31,815

33,799

44,331

36,974

20,000
10,000
0
Fall 2000 Fall 2001 Fall 2002 Fall 2003 Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Fall 2009 Fall 2010

In the fall of 2010, 88,004 students were enrolled at ITT,2066 a more than 200 percent increase
since 2000. Enrollment fell slightly, in 2011 to 79,219 students. This drop in enrollment led to a drop in
both revenue and profit. Eighty percent of the variance in new students is attributable to the company’s
decision to limit new enrollment in the criminal justice program.2067 According to ITT’s CEO, the
reason for this limitation is concern regarding outcomes of criminal justice students.2068
ITT’s growth has been the result of aggressive campus expansion, as the company adds about 8
to 10 new locations per year.2069 The company has identified at least 50 additional locations that they see
as “viable opportunities to continue to expand.” 2070
ITT’s revenue has grown along with enrollment, more than doubling from $757.8 million in
2006 to $1.6 billion in 2010.2071

2066

Enrollment is calculated using the Securities and Exchange Commission quarterly or annual filing for the August-October
period each year. See Appendix 7.
2067
ITT Educational Services, 2011, Q4 Earnings Conference Call with Investors.
2068
Id. Internal documents demonstrate that at one individual campus criminal justice has the highest drop-out rate. ITT
Educational Services, Criminal Justice and Composition March Department Meeting (ITT-00036911).
2069
ITT Educational Services at Robert W. Baird and Co. Inc. Business Solutions Conference. February 29, 2012.
2070
Id.
2071
Matching the drop in enrollment, revenue fell in $1.4 billion in 2011.
Revenue figures for publicly traded companies are from Securities and Exchange Commission annual 10-K filings. Revenue
figures for privately held companies are taken from the company financial statements produced to the committee. See
Appendix 18.

516

 Daniel Webster College
Daniel Webster College was acquired by ITT in 2009 for $20.6 million.2072 According to news
reports, the primary rationale for the purchase was because ITT wanted to acquire a regionally
accredited college.2073
Following the acquisition, ITT fired one fourth of the staff, including the school president.
Interviewed in early 2012, the former president stated, “ITT didn’t have much interest in anything other
than having acquired a regionally accredited institution” and that “if [he] had to do it all over again, [he]
wouldn’t have gone anywhere near ITT. The fundamental nature of the college has changed.” 2074 He
went on, “ITT came in and said, ‘we only want faculty to teach, we’ll develop curricula in Carmel,
Indiana and give them to you.” 2075
Asked about Daniel Webster’s growth potential, Michael Clifford (an investor involved in the
formation of both Grand Canyon Education and Bridgepoint Education) noted that he believed that
Daniel Webster College, “could parallel Grand Canyon or Bridgepoint’s growth curve.” 2076 While ITT
initially had difficulty obtaining approval from the regional accreditor, after 2 years the company has
finally obtained approval to begin to offer online programs (specifically business administration at the
Associate, Bachelor’s, and Master’s level).2077

Federal Revenue
Nearly all for-profit education companies derive the majority of revenues from Federal financial
aid programs. Between 2001 and 2010, the share of title IV Federal financial aid funds flowing to forprofit colleges increased from 12.2 to 24.8 percent and from $5.4 to $32.2 billion.2078 Together, the 30
companies the committee examined derived 79 percent of revenues from title IV Federal financial aid
programs in 2010, up from 68 percent in 2006.2079
In 2010, ITT reported 60.8 percent of revenue from title IV Federal student aid programs.2080
However this amount does not include revenue received from the Departments of Defense and Veterans

2072

ITT Educational Services, 2009, Q2 Earnings Conference Call with Investors.
“Your Taxes Support For-Profits as They Buy Colleges” Bloomberg. Daniel Golden. March 4, 2012.
2074
Id.
2075
Id.
2076
Id.
2077
ITT Educational Services, “ITT Educational Services at Robert W. Baird and Co. Inc. Business Solutions Conference,”
Lexis Nexis, February 29, 2012.
2078
“Federal financial aid funds” as used in this report means funds made available through Title IV of the Higher Education
Act, including subsidized and unsubsidized Stafford loans, Pell grants, PLUS loans and multiple other small loan and grant
programs. See 20 U.S.C. § 1070 et seq. Senate HELP Committee staff analysis of U.S. Department of Education, Federal
Student Aid Data Center, Title IV Program Volume Reports by School,
http://federalstudentaid.ed.gov/datacenter/programmatic.html (accessed July 12, 2012), 2000-1 and 2009-10. Figures for
2000-1 calculated using data provided to the committee by the U.S. Department of Education.
2079
Senate HELP Committee staff analysis of Proprietary School 90/10 numerator and denominator figures for each OPEID
provided to the U.S. Department of Education pursuant to section 487(d)(4) of the Higher Education Act of 1965. Data for
fiscal year 2006 provided to the committee by each company; data for fiscal year 2010 provided by the Department of
Education on October 14, 2011. See Appendix 9.
2080
Senate HELP Committee staff analysis of fiscal 2010 Proprietary School 90/10 numerator and denominator figures for
each OPEID provided to the U.S. Department of Education pursuant to section 487(d)(4) of the Higher Education Act of
1965. Data provided by the Department of Education on October 14, 2011. See Appendix 9.
2073

517

 Affairs education programs.2081 Department of Defense Tuition Assistance and post-9/11 GI bill funds
accounted for approximately 5.1 percent of ITT’s revenue, or $87.8 million.2082 With these funds from
the Departments of Defense and Veterans Affairs included, 65.8 percent of ITT’s total revenue was
comprised of Federal education funds.2083 Additionally, ITT was able to mitigate potential 90/10 issues
through the creation of a large scale semi-private lending program known as PEAKS.
ITT Educational Services, Inc. Federal Money Share, 2010

Federal Education
Funds: $1.1 Billlion

34.2%

65.8%

Federal Education Funds

Non Federal Funds

Over the past 10 years, the amount of Pell grant funds collected by for-profit colleges as a whole
increased from $1.4 billion to $8.8 billion; and the share of total Pell disbursements that for-profit

2081

The Ensuring Continued Access to Student Loan Act (ECASLA) increased Stafford loan amounts by up to $2,000 per
student. The bill also allowed for-profit education companies to exclude the increased amounts of loan eligibility from the
calculation of Federal revenues (the 90/10 calculation) during fiscal years 2009 and 2010. However, ECASLA calculations
for ITT could not be extrapolated from the data the company provided to the committee.
2082
Post-9/11 GI bill disbursements for August 1, 2009-July 31, 2010 provided to the committee from the Department of
Veterans Affairs on November 5, 2010; post-9/11 GI bill disbursements for August 1, 2009-June 15, 2011 provided to the
committee from the Senate Committee on Veterans’ Affairs via the Department of Veterans Affairs on July 18, 2011;
Department of Defense Tuition Assistance disbursements and MyCAA disbursements for fiscal years 2009-11 provided (by
branch) by the Department of Defense on December 19, 2011. Committee staff calculated the average monthly amount of
benefits collected from VA and DOD for each company, and estimated the amount of benefits received during the company’s
2010 fiscal year. See Appendix 11 and 12.
2083
“Federal education funds” as used in this report means Federal financial aid funds combined with estimated Federal funds
received from Department of Defense and Department of Veterans Affairs military education benefit programs. See
Appendix 10.

518

 colleges collected increased from 14 to 25 percent.2084 Part of the reason for this increase is that
Congress has repeatedly increased the amount of Pell grant dollars available to a student over the past 4
years, and, for the 2009-10 and 2010-11 academic years, allowed students attending year-round to
receive 2 Pell awards in 1 year. Poor economic conditions have also played a role in increasing the
number of Pell eligible students enrolling in for-profit colleges.

300

Pell Funds Collected by ITT Educational Services, Inc.,
Award Years 2007 10
$264

Dollars in Millions

250

200

$149

150

$102
100

$84

50

0
2007

2008

2009

2010

ITT tripled the amount of Pell grants it collected, from $84 million in 2007 to $264 million in
2010. 2085

Spending
While the Federal student aid programs are intended to support educational opportunities for
students, for-profit education companies direct much of the revenue derived from these programs to
marketing and recruiting new students and to profit. On average, among the 15 publicly traded

2084

Senate HELP Committee staff analysis of U.S. Department of Education, Federal Student Aid Data Center, Title IV Pell
Grant Program Volume Reports by School, 2001-2 and 2010-11,
http://federalstudentaid.ed.gov/datacenter/programmatic.html.

2085

Pell disbursements are reported according to the Department of Education’s student aid “award year,” other revenue
figures are reported according to the company’s fiscal year. Senate HELP Committee staff analysis of U.S. Department of
Education, Federal Student Aid Data Center, Title IV Pell Grant Program Volume Reports by School, 2006-7 and 2009-10,
http://federalstudentaid.ed.gov/datacenter/programmatic.html (accessed July 12, 2012). See Appendix 13.

519

 education companies, 86 percent of revenues came from Federal taxpayers in fiscal year 2009.2086 During
the same period the companies spent 23 percent of revenues on marketing and recruiting ($3.7 billion),
and 19.7 percent on profit ($3.2 billion).2087 These 15 companies spent a total of $6.9 billion on
marketing, recruiting and profit in fiscal year 2009.
In 2009, ITT allocated 37.1 percent of its revenue, $489 million, to profit, and 19.1 percent, $252
million, to marketing and recruiting.2088 ITT’s 37.1 percent profit margin is the highest amongst the 30
companies the committee examined.
Spending at ITT Educational Services, Inc., 2009
Marketing: $252
Million

Marketing, 19.1%

Other, 43.9%
Profit: $489
Million

Profit, 37.1%

ITT devoted a total of $741 million to marketing, recruiting and profit in fiscal year 2009.2089
The amount of profit ITT generated has increased rapidly, more than doubling from $243 million in
2007 to $614 million in 2010.2090

2086

Senate HELP Committee staff analysis of fiscal year 2009 Proprietary School 90/10 numerator and denominator figures
plus all additional Federal revenues received in fiscal year 2009 provided to the committee by each company pursuant to the
committee document request of August 5, 2010.
2087
Senate HELP Committee staff analysis of fiscal year 2009 Securities and Exchange Commission annual 10-K filings and
information provided to the committee by the company pursuant to the committee document request of August 5, 2010.
Profit is based operating income before tax and other non-operating expenses including depreciation reported in SEC filings.
Marketing and recruiting includes all spending on marketing, advertising, admissions and enrollment personnel as reported to
the committee. See Appendix 19.
2088
Id. On average, the 30 for-profit schools examined spent 23 percent of revenue on marketing and 19.4 percent on profit.
“Other” category includes administration, instruction, executive compensation, student services, physical plant, maintenance
and other expenditures.
2089
Id.

520

 ITT Educational Services, Inc. Profit (Operating Income), 2007 10
700
$614
600

$489

Dollars in Millions

500

400
$325
300
$243
200

100

0
2007

2008

2009

2010

Executive Compensation
Executives at ITT, like most for-profit executives, are also more generously compensated than
leaders of public and non-profit colleges and universities. Executive compensation across the for-profit
sector drastically outpaces both compensation at public and non-profit colleges and universities, despite
poor student outcomes at many for-profit institutions.2091 In 2009, ITT CEO Kevin Modany received
$7.6 million in compensation, more than 22 times as much as the president of Indiana University at
Bloomington, who received $337,144 in total compensation for 2009-10.

2090

Senate HELP Committee staff analysis. See Appendix 18. Matching the drop in enrollment, profit fell in 2011 to $507
million.
2091
Senate HELP Committee staff analysis of fiscal year 2009 Securities and Exchange Commission annual proxy filings and
chief executive salary surveys published by the Chronicle of Higher Education for the 2008-9 school year. See Appendix
17a.

521

 Executive
Kevin M. Modany
Clark D. Elwood
Daniel M.
Fitzpatrick
Eugene E.
Feichtner
June M.
McCormack
Total2092

Title
Chairman and CEO
Executive VP and CAO
Executive VP and CFO

2009 Compensation
$7,628,172
$1,827,591
$1,794,617

2010 Compensation
$6,745,967
$1,425,939
$1,429,072

$1,601,380

$1,327,513

$1,512,783

$1,239,303

$14,364,543

$12,167,794

Executive VP and
President, ITT Tech
Executive VP and
President, Online Division

The chief executive officers of the large publicly traded for-profit education companies took
home, on average, $7.3 million in fiscal year 2009.2093 Modany’s $7.6 million compensation package for
2009 is slightly above average for publicly traded higher education companies.

Tuition and Other Academic Charges
Compared to public colleges offering the same programs, the price of tuition is higher at ITT.
Tuition for an Associate degree in business administration at ITT’s Indianapolis, IN campus was
$44,895.2094 The same program at Ivy Tech Community College in Bloomington, IN costs $9,385.2095
Tuition for a Bachelor’s degree in Business Administration at ITT’s Indianapolis, IN campus costs
$93,624.2096 The same program at Indiana University in Bloomington, IN, costs $43,528.2097

2092

Senate HELP Committee staff analysis of fiscal year 2009 and 2010 Securities Exchange Commission annual proxy
filings. Information analyzed includes figures for named executive officers. See Appendix 17b.
2093
Includes compensation information for 13 of 15 publicly traded for-profit education companies. Kaplan, owned by the
Washington Post Company, does not disclose executive compensation for its executives. And National American University
was not listed on a major stock exchange in 2009.
2094
See Appendix 14; see also, ITT Technical Institute, Program of Study Information, http://www.itttech.edu/programinfo/psi-ind.pdf (accessed July 12, 2012).
2095
See Appendix 14; see also, Ivey Tech Community College, Ivy Tech, http://www.ivytech.edu/ (accessed July 12, 2012).
2096
See Appendix 14; see also, ITT Technical Institute, Program of Study Information, http://www.itttech.edu/programinfo/psi-ind.pdf (accessed July 12, 2012).
2097
See Appendix 14; see also, Indiana University, Indiana University, http://www.iub.edu/ (accessed July 12, 2012).

522

 Cost of an Associate's Degree in Business Administration at ITT
Technical Institute and Ivy Tech Community College
$50,000
$45,000

$44,895

$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$9,385

$10,000
$5,000
$0
ITT Technical Institute

Ivy Tech Community College

Not only does ITT cost more than their public school counterparts, it is also significantly more
expensive than comparable for-profit colleges. For example, the cost of an Associate degree at ITT’s
Clive, IA campus is $47,928.2098 The same degree at Kaplan University in Des Moines, IA is
$30,654,2099 and the degree costs $10,290 at the Des Moines Area Community College.2100 ITT’s Clive
campus had a 54.7 percent withdrawal rate for students enrolling between 2008 and 2009.

2098

ITT Technical Institute, Program of Study Information, http://www.itt-tech.edu/programinfo/psi-ind.pdf (accessed July
12, 2012).
2099
see also, Kaplan University, Tuition and Fees, http://davenport.kaplanuniversity.edu/pages/tuition.aspx (accessed July
12, 2012).
2100
Des Moines Area Community College, Des Moines Area Community College, http://www.dmacc.edu/ (accessed, July
12, 2012).

523

 $60,000

Cost of an Associate Degree at Three Des Moines, Iowa
Colleges
$47,928

$50,000

$40,000
$30,654
$30,000

$20,000
$10,290
$10,000

$0
Des Moines Area Community
College

Kaplan University (Des Moines,
Iowa)

Public Colleges

ITT Tech (Clive, Iowa)

For Profit Colleges

The higher tuition that ITT charges is reflected in the amount of money that ITT collects for each
veteran that it enrolls. From 2009-11, ITT trained 11,856 veterans and received $178 million in post9/11 GI bill benefits, averaging $15,042 per veteran. In contrast, public colleges collected an average of
$4,642 per veteran trained in the same period.2101

Scholarships or Debt Reduction Strategy?
ITT asserts that its regular annual tuition increases, at least 5 percent for each of the 14 years
between 1996 and 2010, reflect in part the return on investment students receive.2102 However a
confidential presentation to the company’s board of directors presents a different take on the value of the
student investment. Prepared in response to a draft rule defining the statutory term “gainful
employment,” that was subsequently revised and recently struck down by a district court decision, the
presentation noted: “the overwhelming majority of our programs do NOT comply with the proposed
‘GE bright line’[emphasis in original]” but that ITT “could comply with the proposed rule by reducing
tuition levels by an average of 11 percent. [Emphasis in original]” 2103
2101

See Appendix 11. Post-9/11 GI bill disbursements for August 1, 2009-June 15, 2011 provided to the committee from the
Senate Committee on Veterans’ Affairs via the Department of Veterans Affairs on July 18, 2011.
2102
ITT Internal Spreadsheets, Quarterly Financial Statements for 1996-2007 (ITT-00119308); See also; ITT Educational
Services Internal Email, September 14, 2006, re: ThinkEquality/ ESI: ThinkEquality Partners Growth Conference Highlights
(ITT-00139934).
2103
ITT Educational Services, April 19, 2009, Board of Directors Meeting (ITT-00133682). On June 2, 2011, the
administration released its final rule, which was significantly less impactful that the rule discussed by the board. Under the
final rule, a school’s degree program does not lose access to title IV funds unless it violates three separate thresholds (loan
repayment rates below 35 percent, annual average loan payment less than 30 percent of students’ discretionary income; and

524

 Though an 11 percent cut would still keep ITT’s program costs well above those at Kaplan,
DeVry, Apollo, and other for-profit colleges, the presentation declared that the tuition reduction was the
“least economically efficient scenario” because it would reduce debt levels for all students, not just
graduates, while the proposed regulation only applied to the debt-to-income ratios of graduates.2104
Essentially reducing tuition and thus debt for students who dropped out was deemed inefficient because
they were, at that point, not captured in the regulation.
The board presentation went on to state that the “most economically efficient” solution would be
to provide selective financial awards to students likely to graduate. By focusing on graduating students,
these awards “effects only revenue from program completers,” but would still “result in a reduction of
the median loan debt balance of graduates in each program of study.”
One of the scholarship programs created around the same time, the Presidential Scholarship,
appears to mimic this strategy. The scholarship provides a 20 percent tuition reduction for Bachelor’s
degree students enrolled after September 2008 who first graduated from an ITT Associate program. It is
applied retroactively after a student completes a given quarter. In this way, the company is able to
reduce the debt loads of graduates, without “inefficiently” forgoing higher revenue from students who
are not expected to graduate.

Cost Representations
Documents indicated that, at least during the period reviewed, ITT recruiters were trained to
mislead prospective students about the cost of attending the school. When potential students inquire
about the cost of tuition at ITT, recruiters are trained to answer with responses like:
Do you want a discount education, or a valuable one that will give you a return in the
future? 2105
Education is an investment in you and an investment in yourself is never a bad
investment.2106
Could you share with me your thoughts or ideas as to why you think it might be too
expensive? 2107
While prospective students are more likely to have difficulty obtaining a clear answer on the true
cost of attending, current students can also encounter difficulty getting accurate information on price.
When a panel member on an accreditation visit suggested that an ITT campus could post tuition
increases in the student lounge, so that current students would be notified without first having to locate
and read the updated course catalog, ITT’s Regulatory Affairs Manager responded: “We comply with
state requirements and ACICS criteria 3-1-342(a) by clearly posting the tuition and other charges in the
the annual loan payments less than 12 percent of students total earnings) three separate times in 4 years. On June 30, 2012,
the District Court for the District of Columbia struck down the gainful employment rule stating that the Department had
failed to provide sufficient justification for the requirement that 35 percent of students are repaying loans. Association of
Private Colleges and Universities v. Duncan, 2012 DC D 1:11-CV-01314-RC U, p. 29-31, available at
http://big.assets.huffingtonpost.com/judgeordergainful.pdf (accessed July 6, 2012).
2104
ITT Educational Services, April 19, 2009, Board of Directors Meeting (Id., ITT-00133682).
2105
ITT Educational Services, January 16, 2009, Phone Objections Training (ITT-00011550 at ITT-00011552). The
company asserts that this document reflects unapproved training material used at one campus of the school.
2106
Id.
2107
ITT Educational Services Internal Memorandum, re: Sample Actions for Common Objections (ITT-00016826); See also
ITT Educational Services Internal Memorandum, re: Handling Objections (ITT-00020084), ITT Educational Services
Internal Memorandum, re: Overcoming Objections (ITT-00025676).

525

 c
catalog. Unt the ACICS criteria req
til
quire an add
ditional posti all ITT T
ing
Technical Ins
stitutes will list
t
tuition and other charges as required in the catalo 2108
s
d
og.”

I
ITT’s PEA
AKS Progra
am
Becau of the pr of tuition to attend ITT, in addit
use
rice
I
tion to Feder loans and grants, man
ral
d
ny
s
students mus rely on alternative fina
st
ancing. In order to meet this need, I partnered with a Wa Street
t
ITT
all
investment bank to devis a lending program tha through an impressive complex series of fin
b
se
at,
n
ely
x
nancial
t
transactions, may meet th definition of a “privat loan that ITT may co
he
n
te”
t
ount towards the 10 side of the
s
e
9
90/10 calcula
ation.2109
IT PEAKS Transaction F
TT
T
Flowchart:

The program beg with Libe Bank, who issued $
p
gan
erty
w
$346 million in loans to I students ITT
ITT
s.
t
took a 28 per
rcent discoun on these loans and rec
nt
l
ceived $246 .7 million in cash from L
n
Liberty Bank The
k.
l
loans were th sold to a trust that th issued $3 million i senior deb to a group of Wall Str
hen
hen
300
in
bt
p
reet
investors. In exchange for their discount on the loans, ITT r
n
f
received a su
ubordinated n from th trust
note
he
a additiona guarante the senio debt holde payment of principal interest, ce
and
ally
eed
or
ers
t
l,
ertain call pr
remiums
a administ
and
trative fees and expenses regardless of whether the loans are repaid.2110 The PEAKs
a
s,
s
e
s
2 111
p
program has a variable in
nterest rate ranging from 4.75 to 14.75 percent.
r
m
2108

ITT Educat
tional Services Internal Email, January 7, 20
009: re: Tuition increase- pos
n
sting for studen (ITT-00080
nts
0730).
The regulat
tions require in
nstitutional loan programs me four require
n
eet
ements: (A) Ar bona fide as evidenced by standalone
re
r
repayment agre
eements betwee the students and the institu
en
s
ution that are e
enforceable pro
omissory notes; (B) Are issue at
ed
in
ntervals related to the institut
d
tion’s enrollme periods; (C Are subject t regular loan repayments an collections b the
ent
C)
to
nd
by
in
nstitution; and (D) Are separ from the en
rate
nrollment contr
racts signed by the students. § 668.28 (a)(i)
y
)(A)-(D).
2110
According to ITT internal emails, it wou require a 40 percent loss r (two times the expected loss rate) before a
l
uld
0
rate
s
p
payment on the guaranty wou be required. ITT Educatio Services In
e
uld
onal
nternal Email, November 18, 2009, re: PEA (ITT,
AKS
0
00147688); See also, ITT Edu
e
ucational Servi
ices, Default Graph (ITT-001
G
147689).
2111
ITT Educat
tional Services, Private Educ
cation Loan App
plication and S
Solicitation Di
isclosure by Lib
berty Bank, (IT
TT0
00080791).
2109

526

 ITT’s CEO describes the PEAKs program as:
A third-party private student finance program where our students apply for private
lending to fill the gap financing need that they have … if a student gets a loan, for
example, for a thousand dollars, there’s less than that amount that is transferred to the
company. So some amount of that loan stays behind to provide excess collateralization
for the performance of the portfolio. And then in addition to that, the company provides
guarantees on the performance of the program, and to the extent that the excess of
collateralization would not be sufficient to cover the return on the investment that the
senior notes that the investors put into the trust to fund the program.2112
As of June 30, 2011, ITT has exhausted the lending capacity of the PEAKs program and
is no longer originating additional PEAKs loans, although the company has indicated they are
interested in reinstituting a similar program.2113 Between January 2010 and June 2011, in
addition to Federal loans and grants, approximately $345 million in loans were made to ITT
students. In 2009, the year before PEAKS funding was available, ITT’s 90/10 ratio was 70
percent. For 2010, this ratio fell to 60.8 percent. While it is unclear as to the extent PEAKS is
responsible for this drop, the program is likely responsible for at least a portion of this decline.

Recruiting
Enrollment growth is critical to the business success of for-profit education companies,
particularly for publicly traded companies that are closely watched by Wall Street analysts. In order to
meet revenue and profit expectations, for-profit colleges must recruit as many students as possible to
sign up for their programs.
Internal company documents make clear that recruiters employed by ITT are expected to pursue
prospective students aggressively. During the period examined by the committee, recruiters are
instructed that they are to make 140 calls a day if they have no appointments, and 100 if they have
one.2114
One pervasive sales technique employed by ITT is to manipulate a prospective student’s
emotions as a strategy to sell an enrollment contract. One ITT recruiting manager explained that a
recruiter must “dig[] in and get[] to the pain of each and every prospective student.” He added, “By
getting to the pain, the representatives will be able to solidify the appointments and have a better show
rate for the actual conducts.” 2115
ITT’s training materials lays out the sales steps: “Establishing Rapport,” “Transition into digging
for the motivation,” “Transiting into feeling the pain [sic],” and “Transitioning into making the

2112

ITT Educational Services, “ITT at Credit Suisse Global Services Conference,” Lexis Nexis, March 13, 2012.
ITT Educational Institution, July 2011, Q2 Earnings Conference Call with Investors; See also ITT Educational
Institution, “ITT at Credit Suisse Global Services Conference,” Lexis Nexis, March 13, 2012. ITT Educational Institution,
March 13, 2012, Q1 Earnings Conference Call with Investors.
2114
ITT Educational Institution Internal Training Document, How Many Phone Calls is Good? (ITT-00064242). The
company asserts that this document was not created or approved by school management.
2115
ITT Educational Institution Internal Memorandum, June Analysis 2007 (ITT-00025689). The company asserts that this
document is not representative of the school’s policies and procedures and is an example of inappropriate actions by isolated
individuals. The company asserts that this document was created and used by only a few campus-level employees and was
never approved by the school.
2113

527

 c
connection between the motivation and getting a degree.” 211 6 To address students tha sign an en
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a
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at
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a
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rt
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b and “rem
bit”
mind them what things will be like if they don’t c
w
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continue for
rward and ea their degrees.” 2117
arn
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ach

A
After a recru
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19
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at
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ore
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2116

ITT Educat
tional Services, Jan. 5th Frida Morning Tra
ay
aining Session : Phoning Tec
chniques (ITT-0
00015566, at ITT0
00015567-68)
2117
ITT Educat
tional Services Internal Docu
ument, Ways to combat “drop in marketin during the c
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any
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r
at
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2118
ITT Educat
tional Services Internal Train
ning Document Sandler Sales Institute: Pai Funnel and P
t,
s
in
Pain Puzzle (IT
TT0
00010049). See also ITT Edu
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airre Exhibit 3 (ITT-00010050), ITT
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ument, ITT Inf
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ool.

528

 prospective students, “tell me more about that” or “give me an example.” In “Level 2” the recruiter asks
“What have you tried to do about that?” The highest level asks a hurtful question to elicit pain: “Have
you given up trying to deal with the problem?”
After Chairman Harkin released this documents during a statement on the Senate floor in
February 2011, counsel for ITT wrote to the Chairman noting that “the conduct suggested by the
documents referenced in your statement was not sanctioned by ITT.” 2120 It goes on to note that ITT
regrets that the conduct was suggested and has opened an investigation to determine the extent of the
conduct and respond appropriately and decisively. However, also following the release of the
document, HELP Committee staff were contacted by counsel for a former ITT recruiter who had created
the ITT specific version of the “pain funnel.” Committee staff subsequently interviewed the recruiter.2121
As the recruiter details in her letter to the committee, she adapted documents from a sales training that
ITT had paid for her to attend and brought them to her ITT campus.2122 She states that she trained many
other ITT staff using the pain funnel:
In addition, at quarterly district meetings I did pain funnel training for nearly every top
recruitment representative, financial aid coordinator, dean, instructor, department chairs,
all functional managers, all college directors and the district manager for the entire
Southern California District, the largest district in the country. The presentation material
was also given out to over 100 ITT Tech employees throughout every department in the
district.2123
She goes on to state that she submitted the document to executives at ITT headquarters for
consideration for an award:
In October 2009, I wrote up a BEST OF THE BEST (BOB) submission to HQ that included the
same “Pain Funnel and Pain Puzzle” and how proper usage of this tool can bring a prospect to
their inner child, an emotional place intended to have the prospect say yes I will enroll.2124

Thus, it is unclear how the documents and its contents could be classified as not sanctioned.
Compensation based on recruitment goals is not limited to enrollment staff. In 2008, and prior to
the ban on incentive based compensation, ITT’s management employee performance and compensation
depended on meeting several “Corporate Objectives,” which included: “Total Enrollment Growth” of 9
percent, “Earnings Per Share” of 20 percent, “Free Cash Flow” of 15 percent, and “Graduate
Employment Rate” of 85 percent.2125
At the staff level, in addition to salary increases, managers use prizes and awards to drive sales.
At ITT, “ANY TEAM WITH 6 APPOINTMENTS SET … OR 2 APPLIED CAN WORK AN EARLY

2119

ITT, Pain Funnel and Pain Puzzle (ITT-00010049) (training materials prepared by Sandler Sales Institute). See also ITT,
ITT Technical Institute Questionnaire: Exhibit 3 (ITT-00010050). The company asserts that this document was never
approved by ITT management.
2120
Letter to Chairman Harkin, from ITT Counsel, Gibson Dunn & Crutcher, LLP, February 10, 2011.
2121
Majority HELP Committee staff interview with Laura Brozek and Wayne Beaudoin, June 21, 2011.
2122
Letter from Laura Brozek, June 24, 2012.
2123
Id.
2124
Id.
2125
ITT Educational Services, 2008 Performance Planning and Evaluation (PP&E) Form for Management Employees (ITT00056795).

529

 SHIFT ON WEDNESDAY…. [Emphasis in original]” 2126 Many of these practices have been limited
by the ban on incentive compensation that took effect in July 2011, a ban that ITT’s CEO called
“absolutely egregious, [it’s] just nonsensical, [it’s] illogical.” 2127
Documents also demonstrate a focus on recruiting students eligible for military benefits. ITT is
the second highest recipient of post-9/11 GI bill funds, taking in $178 million between 2009 and 2011.
In 2009, ITT initiated a military marketing plan with the goal of increasing military enrollments by 20
percent at 42 selected campuses.2128
In addition, executives sought to increase the amount of Department of Defense Tuition
Assistance funds the company received. CEO Kevin Modany wrote in an email “We didn’t even make
the top 40 providers to the military! What an opportunity that we have in front of us!” He went on, “We
need to see how we can penetrate this world with ITT Tech AND DWC [Daniel Webster College]!!
[Emphasis in original]” 2129
Complaints demonstrate that pressure to recruit students resulted in the use of some misleading
and deceptive tactics. One combat veteran with Post Traumatic Stress Disorder wrote to ITT saying:
The ITT Representative I met with told me that the military would pay for my schooling.
… Then a few months letter, I got bills from Sallie Mae saying I owe money for two
loans [sic]! A federal and a private loan! What!? I was told I would never see a bill.2130
The mother of the same soldier wrote in about her son’s experience with an ITT representative:
The Rep. told him he needed a co-signor just so he could start school immediately, but
not to worry about it, because the military was going to pay for everything, even give him
money to live on and pay his expenses [sic]. He sounded so hopeful, something I hadn’t
heard from him since before the war. It was really hard for him to admit he couldn’t
continue going to school. He said, he just couldn’t retain the material… He could hardly
come around me when he found out Sallie Mae was calling me for payment of his loan.
Veterans with PTSD commonly isolate themselves from family and friends. This made it
even worse.2131
Non-military students complained that they felt misled or deceived by recruiters. An ITT student
complained that:
during the tour and meeting with the student representative for admissions, I was given
an overview of the school’s program, which explained that I would earn a BA in Criminal
Justice, which would support the needs I was seeking, of which were to apply for law

2126

ITT Educational Services Internal Email, December 22, 2009, re: CONTEST UPDATE! ! ! 30 APPOINTMENTS –
YAHOO ! ! ! (ITT-00028551, at ITT-00028552).
2127
ITT Educational Services, 2011, Q1 Earnings Conference Call with Investors.
2128
ITT Educational Services Internal Email, December 8, 2009, re: FW: 2010 Military Marketing Plan (ITT-00123921, at
ITT-00123921-22); See also ITT Educational Services Internal Document, Military Marketing Plan (ITT-00123927); ITT
Educational Services, July 7, 2008, ITT Educational Services Inc. Operations Department Proposal Draft: Military
Recruitment Proposal (ITT-00144035).
2129
ITT Educational Services Internal Email, February 18, 2010, re: FW: Stifel: Education-Summary from the CCME
Conference Kickoff (ITT-00140384).
2130
ITT Educational Services Internal Email, January 29, 2009, re: (redacted) (ITT-00007708, at ITT-00007744).
2131
Id., at ITT-00007716.

530

 school. I was also advised that should I decide to transfer to another college, that the
credits were transferable.2132
Two years and tens of thousands of dollars later, the student discovered that he could not transfer
credits, and that most law schools would not accept the degree.
One student complaining about the school misleading him regarding the transferability of credits
stated, “We had discussed many things but I am feeling now that I was mislead [sic]. [The recruiter]
had me initial a bunch of papers which I do not feel were explained to me very properly. I am just not
finding out that my credits are not transferable to the University I was specifically discussing with him
[sic]… He said my credits would transfer and could possibly be ahead of other students with the on hand
training ITT teaches. I was trusting the representative of ITT believing he was telling me the truth.” 2133
Another student complained, “We have been misinformed and mislead. [sic] Your recruiters do not
reveal all the issues, use general statements and they do not clearly explain what the bachelor degree
really is. We enrolled in good faith, thinking we were working towards a diploma improving our future,
but instead we would have paid a lot of money for something insignificant.” 2134
While student complaints may not be representative of the experience of the majority of students,
these complaints do provide an important perspective on ITT’s academic quality.

Outcomes
While aggressive recruiting and high cost programs might be less problematic if students were
receiving promised educational outcomes, committee staff analysis showed that tremendous numbers of
students are leaving for-profit colleges without a degree. Because 98 percent of students who enroll in a
2-year degree program at a for-profit college, and 96 percent who enroll in a 4-year degree program,
take out loans, hundreds of thousands of students are leaving for-profit colleges with debt but no
diploma or degree each year.2135
Two metrics are key to assessing student outcomes: (1) retention rates based on information
provided to the committee and (2) student loan “cohort default rates.” These metrics indicate that many
students who enroll at ITT are not achieving their educational and career goals.

Retention Rates
Information ITT provided to the committee indicates that, of the 64,921 students who enrolled at
ITT in 2008-9, 52 percent, or 33,733 students, withdrew by mid-2010. These withdrawn students were
enrolled a median of 3 months.2136 Overall, ITT’s withdrawal rate closely tracks the sector-wide rate
2132

ITT Educational Services, February 2, 2007, Student Comment/Complaint Report (ITT-00006208).
ITT Educational Services, August 22, 2008, Student Comment/Complaint Report (ITT-00008037, at ITT-00008040).
2134
ITT Educational Services, May 11, 2010, Student Complaint Letter to Christopher Carpenter re: Grievance Procedure
step 2 (ITT-00009637, at ITT-00009686).
2135
Patricia Steele and Sandy Baum, “How Much Are College Students Borrowing?,” College Board Policy Brief, August
2009, http://advocacy.collegeboard.org/sites/default/files/09b_552_PolicyBrief_WEB_090730.pdf (accessed June 14, 2012).
2136
Senate HELP Committee staff analysis. See Appendix 15. Rates track students who enrolled between July 1, 2008 and
June 30, 2009. For-profit education companies use different internal definitions of whether students are “active” or
“withdrawn.” The date a student is considered “withdrawn” varies from 10 to 90 days from date of last attendance. Two
companies provided amended data to properly account for students that had transferred within programs. Committee staff
note that the data request instructed companies to provide a unique student identifier for each student, thus allowing accurate
accounting of students who re-entered or transferred programs within the school. The dataset is current as of mid-2010,
2133

531

 withdrawal rate of 54 percent. The majority of ITT’s students are enrolled in 2-year associate degree
programs. More than half these students, or 30,012 students withdrew by mid-2010.2137 The costs of
withdrawal can be substantial, as 95 percent of ITT defaulters were students who did not graduate.2138
Status of Students Enrolled in ITT Educational Services, Inc. in 2008 9, as of 2010
Degree Level
Enrollment
Percent
Percent
Percent
Number
Median
Completed
Still
Withdrawn Withdrawn
Days
Enrolled
Associate
Degree
56,557
5.0%
42.0%
53.1%
30,012
96
Bachelor’’s
Degree
8,364
6.0%
49.5%
44.5%
3,721
85
2139
All Students
64,921
5.1%
42.9%
52.0%
33,733
95
The dataset does not capture some students who withdraw and subsequently return, which is one
of the advantages of the for-profit education model. The analysis also does not account for students who
withdraw after mid-2010 when the data were produced.

Student Loan Defaults
While the number of students leaving ITT with no degree is lower than some, the number of
students defaulting on student loans is high. The Department of Education tracks and reports the
number of students who default on student loans (meaning that the student does not make payments for
at least 360 days) within 3 years of entering repayment, which usually begins 6 months after leaving
college.2140
Slightly more than 1 in 5 students who attended a for-profit college, (22 percent) defaulted on a
student loan, according to the most recent data.2141 In contrast, 1 student in 11 at public and non-profit
schools defaulted within the same period.2142 On the whole, students who attended for-profit schools
default at nearly three times the rate of students who attended other types of institutions.2143 The
consequence of this higher rate is that almost half of all student loans defaults nationwide are held by
students who attended for-profit colleges.2144

students who withdrew within the cohort period and re-entered afterward are not counted. Some students counted as
withdrawals may have transferred to other institutions.
2137
It is not possible to compare student retention or withdrawal rates at public or non-profit institutions because this data
was provided to the committee directly by the companies. While the Department of Education tracks student retention and
outcomes for all colleges, because students who have previously attended college are excluded from the data set, it fails to
provide an accurate picture of student outcomes or an accurate means of comparing for-profit and non-profit and public
colleges.
2138
ITT Educational Services,2010, Q2 Earnings Conference Call with Investors.
2139
The committee analyzed data for students who enrolled at each company between July 1, 2008 and June 30, 2009. This
dataset did not include ITT students who enrolled prior to July 1, 2008. The inclusion of these students could potentially
have resulted in a lower overall percentage of students withdrawing.
2140
Direct Loan Default Rates, 34 CFR 668.183(c).
2141
Senate HELP Committee staff analysis of U.S. Department of Education Trial Cohort Default Rates fiscal year 2005-8,
http://federalstudentaid.ed.gov/datacenter/cohort.html (accessed July 12, 2012). Default rates calculated by cumulating
number of students entered into repayment and default by sector.
2142
Id.
2143
Id.
2144
Id.

532

 The 3-year default rate across all 30 companies examined increased each fiscal year between
2005 and 2008, from 17.1 percent to 22.6 percent.2145 This change represents a 32.6 percent increase
over 4 years.2146 ITT’s default rate has similarly increased, growing from 21.1 percent for students
entering repayment in 2005 to 26.3 percent for students entering repayment in 2008. ITT’s most recent
default rate is the sixth highest rate of loan default amongst the 30 schools examined by the committee.
The company expects its 2009 draft 3-year cohort default rate to be approximately 34 percent.2147
ITT Educational Services, Inc. Trial 3 Year Default Rate, 2005 8
40%

35%

30%

26.3%
24.1%

25%

21.1%

20.5%

2005

2006

20%

15%

10%

5%

0%
2007

ITT Educational Services, Inc. Default Rate

2008

Average Default Rate, All Schools

Default Management
It is likely that the reported default rates significantly undercount the number of students who
ultimately face default, because of companies’ efforts to place students in deferments and forbearances.
Helping get delinquent students into repayment, deferment, or forbearance prior to default is encouraged
by the Department of Education. However, for many students forbearance and deferment serve only to
delay default beyond the 3-year measurement period the Department of Education uses to track defaults.
Default management is primarily accomplished by putting students who have not made payments
on their student loans into temporary deferments or forbearances. Default management contractors are
2145

Senate HELP Committee staff analysis of U.S. Department of Education Trial Cohort Default Rates fiscal year 2005-8,
http://federalstudentaid.ed.gov/datacenter/cohort.htm (accessed July 12, 2012). Default rates calculated by cumulating
number of students entered into repayment and default for all OPEID numbers controlled by the company in each fiscal year.
See Appendix 16.
2146
Department of Education 3-year cohort default rate, for students entering repayment in fiscal years 2005, 2006, 2007 and
2008.
2147
Note this figure is prior to any appeals that that company expects to make. ITT at Credit Suisse Global Services
Conference March 13, 2012.

533

 paid to counsel students into repayment options that ensure that students default outside the 2-year, soon
to be 3-year, statutory window, in which the Department of Education monitors defaults.
ITT has only recently begun to focus these efforts on bringing down their 3-year default rate.
When discussing as to why the 3-year default rate was higher than the 2-year, ITT CFO Daniel
Fitzpatrick stated:
I think that you do know that when we talk about adding that third year into the
calculation, really that third year was not really worked at all, in the way the first two
years are worked and so it is really hard to indicate what type of impact we can have
there. We know that when we provide default management services there, we are able to
mitigate losses.2148
ITT, like many other for-profit colleges, contracted with the General Revenue Corporation
(GRC), a subsidiary of Sallie Mae, to “cure” students who are approaching default. Under the
agreement, ITT pays GRC a fee of $30 for every student borrower who entered repayment between
October 1, 2008 and September 30, 2009, and a performance bonus of $50 for each borrower cured by
GRC.2149 In practice, documents indicate that nearly all “cures” are accomplished by deferment or
forbearance, not by students actually repaying their loans. And this is reflected in the GRC’s reporting
to ITT. In 2010, 78 percent of those cured by GRC were cured by being placed in deferment or
forbearance.

2148

ITT Educational Services, 2009, Q4 Earnings Conference Call with Investors.
ITT Educational Services, January 24, 2010, Cohort Default Management Services Agreement (ITT-0002284); See also
ITT Educational Services, June 24, 2010, First Amendment to Cohort Default Management Services Agreement (ITT00002281);ITT Educational Services, August 20, 2010, Letter from Erick Johnson, General Revenue Corporation, to Dan
Fitzpatrick, re: Second Amendment to Cohort Default Management Services Agreement (ITT-00002277);ITT Educational
Services, August 25, 2005, General Revenue Corporation Contract for Services (ITT-00002264).

2149

534

 ITT Tactics for "Managing" Delinquent Students

Payment (542
Students)

Deferment (259
Students)

Forbearance (781
Students)

Payment (77
Students)

22.0%

Deferment (91
Students)

26.0%

34.2%

16.4%

Forbearance (182
Students)

49.4%

2009: 1,582 Default Cures Out of 9,784 Borrowers
Given to GRC

52.0%

2010: 350 Default Cures Out of 2,070 Borrowers
Given to GRC

Source: Senate HELP Committee Analysis of Documents

This practice is troubling for taxpayers. The cohort default rate is designed not just as a sanction,
but also as a key indicator of a school’s ability to serve its students and help them secure jobs. If schools
actively work to place students in forbearance and deferment, that means taxpayers and policymakers
fail to get an accurate assessment of repayment and default rates. A school that has large numbers of its
students defaulting on their loans indicates problems with program quality, retention, student services,
career services, and reputation in the employer community. Aggressive default management
undermines the validity of the default rate indicator by masking the true number of students who end up
defaulting on their loans. Critically, schools that would otherwise face penalties—including loss of
access to further taxpayer funds—continue to operate because they are able to manipulate their default
statistics.
Moreover, forbearances may not always be in the best interest of the student. This is because
during forbearance of Federal loans, as well as during deferment of unsubsidized loans, interest still
accrues. The additional interest accrued during the period of forbearance is added to the principal loan
balance at the end of the forbearance, with the result that interest then accrues on an even larger balance.
Thus, some students will end up paying much more over the life of their loan after a forbearance or
deferment.

Instruction and Academics
Students and employers expect to be able to trust that institutions of higher education, especially
career-focused education, are teaching skills that are valued in the workplace with appropriate integrity
and rigor. Undercover observation and student complaints reveal that many for-profit schools have

535

 curriculums that do not challenge students, academic integrity policies that are sparsely enforced, and
teaching interactions that in some cases do not lead to successful student learning and outcomes.
In 2011, GAO undercover students enrolled in 12 different online colleges using fictitious
identities and academic credentials. ITT was one of the schools visited by the GAO, with agents
enrolling in three different courses at ITT.
In a “Learning Strategies and Techniques” course at ITT, students were instructed to write 1 to 2
pages describing the eight-steps to problem solving and apply them to a work, school, or personal
problem. The undercover agent submitted a word document that listed four-steps of problem solving,
along with five short sentences referencing a time management problem. The teacher awarded the
submission a grade of 90 percent, along with the following feedback: “Paper met expectations; however,
it was submitted two days late resulting in a 10% deduction.” 2150 The student also received full credit
for an assignment submitted for this class that had also been submitted for another class, and contained a
clear notation that it was prepared for the other class.2151 In another class, the student received 100
percent of the available points, despite submitting only two of three required components.2152
The GAO undercover student also had a number of issues at ITT independent of academic
quality. After the student withdrew, ITT provided the student’s information to the collection agency
before providing a final bill.2153 College personnel stated this is how they handle all student accounts.2154
School staff also stated that exit counseling had been provided during the entrance interview.2155
Regulations concerning exit counseling state that it must be conducted shortly before or after
withdrawal.2156
The quality of any college’s academics is difficult to quantify. However, the amount that a
school spends on instruction per student compared to other spending, and what students say about their
experience are two useful measures.
ITT spent $2,839 per student on instruction in 2009, compared to $3,156 per student on
marketing and $6,127 per student on profit.2157 The amount that publicly traded for-profit companies
spend on instruction ranges from $892 to $3,969 per student per year. In contrast, public and non-profit
4-year colleges and universities, generally spend a higher amount per student on instruction while
community colleges spend a comparable amount but charge far lower tuition than for-profit
colleges. Other Indiana-based colleges spent, on a per student basis, $11,856 at Indiana UniversityBloomington, $4,193 at Indiana Wesleyan University, and $2,827 at Ivy Tech Community College.2158
2150

ITT Educational Services, February 22, 2011, Assessment Writing Assignment, (HQ-4682883).
GAO II.
2152
GAO II.
2153
GAO II.
2154
GAO II.
2155
GAO II.
2156
1934 C.F.R. § 685.304.
2157
Senate HELP Committee staff analysis. See Appendix 20, Appendix 21, and Appendix 22. Marketing and profit figures
provided by company or Securities and Exchange filings, instruction figure from IPEDS. IPEDs data for instruction
spending based on instructional cost provided by the company to the Department of Education. According to IPEDS,
instruction cost is composed of “general academic instruction, occupational and vocational instruction, special session
instruction, community education, preparatory and adult basic education, and remedial and tutorial instruction conducted by
the teaching faculty for the institution’s students.” Denominator is IPEDS “full-time equivalent” enrollment.
2158
Senate HELP Committee staff analysis. See Appendix 23. Many for-profit colleges enroll a significant number of
students in online programs. In some cases, the lower delivery costs of online classes–which do not include construction,
leasing and maintenance of physical buildings–are not passed on to students, who pay the same or higher tuition for online
courses.
2151

536

 A large portion of the faculty at many for-profit colleges is composed of part-time and adjunct
faculty. While a large number of part-time and adjunct faculty is an important factor in a low-cost
education delivery model, it also raises questions regarding the academic independence they are able to
exercise to balance the colleges’ business interests. Among the 30 schools the committee examined, 80
percent of the faculty is part-time, higher in some companies.2159 In 2010, ITT employed 1,682 full-time
and 4,473 part-time faculty.2160
Complaints from ITT’s students reflect concerns with academic quality. One ITT student
complained, “The complete and total lack of preparation, effort, and desire to perform on the part of the
instructor has made this course without any doubt in my mind the largest waste of time, money, effort,
and resources since I have begun attending this school.” 2161 Another student said, “[I was] rather
frustrated with the class I took, felt that I learned nothing and do not feel a bill for $2500 is a fair amount
to be paying for a rather inadequate education.” 2162
An ITT student taking courses in IT and Web site design complained, “Several of the classes
were inadequate due to untrained or unqualified instructors, the lack of any instructor in certain class,
the lack of book availability in other courses, and problems accessing equipment and software in
others.” The student’s web design class “was inadequate due to instructor … not teaching any HTML
coding language and instead encouraging students to find code from other Internet websites and copy
and paste said code as the student’s own work. Furthermore, [the instructor] spent the class period
playing [a video] game instead of evaluating student projects.” 2163 Another ITT student complained, “I
have a huge problem. I have no teacher. It seems that ITT has yet again fired a teacher that plays a very
important role up there with out a replacement [sic]. Therefore, there was a class full of students up
there last night and not one person knew what was going on.” 2164 A different student complained,
“When I started I was shocked to find out that my first class was an intro to pc’s class, when I though I
would be challenge I was thinking that it would be hard classes not hard classes to stay awake in [sic].”
2165
Another student complained, “The online teachers do not know anything about the subject they
teach, at least that has been my experience. The online teacher cannot answer simple questions, instead
they insult you and tell you to refer to the book…This is a horrible school. The faculty hates their job.
All of the students in my program are very unhappy with the school. No one I know will ever attend this
school.” 2166
In 2006, the ethical practices of ITT Tech’s Little Rock campus were called into question by its
accreditor ACICS for instructing faculty “to inform their students that students are not to complain to the
committee about any grievances they may have” and that “faculty are to remain in their class until the
end of the assigned course period and not leave early while the accrediting committee are here.” 2167

2159

Senate HELP Committee staff analysis of information provided to the committee by the company pursuant to the
committee document request of August 5, 2010. See Appendix 24.
2160
Id.
2161
ITT Educational Services, August 17, 2006, Student Comment/Complaint Report (ITT-00003876).
2162
ITT Educational Services, April 19, 2010, Letter from Lynn Ward, re: Student Complaint (ITT-00009785, at ITT00009786).
2163
ITT Educational Services, February 22, 2007, Student Comment/Complaint Report (ITT-00005085 at ITT-00005086).
2164
ITT Educational Services, December 12, 2006, Student Comment/Complaint Reprot (ITT-00004629); See also ITT
Educational Services, August 28, 2008, Student Complaint Summary (ITT-00006239).
2165
ITT Educational Services, February 22, 2006, Email re: FW: To whom it may concern (ITT-00004186, at ITT-00004189)
(SIC).
2166
ITT Educational Services, May 6, 2006, Student Comment/Complaint Report (ITT-00004287).
2167
ITT Educational Services, January 23-25, 2006, New Grant, New Program, AND Credential Inclusion Evaluation
Reports (ITT-00124632, at ITT-00124638). See Also ITT-00124630 and ITT-00124829.

537

 Staffing
While for-profit education companies employed large numbers of recruiters to enroll new
students, the same companies employ far less staff to provide tutoring, remedial services or career
counseling and placement. In 2010, with 88,004 students, ITT employed 2,550 recruiters, 431 career
services employees, and 109 student services employees.2168 That means each career counselor was
responsible for 204 students and each student services staffer was responsible for 807 students, but the
company employed one recruiter for every 34 students.
ITT Educational Services, Inc. Staffing, 2007 10
100,000

3000

88,004
79,208

2,550 Recruiters

80,000
70,000

2000

61,556
60,000

53,675
1500

50,000
40,000

1000

Number of Students

Number of Employees

2500

90,000

30,000
20,000

500

10,000
0

0
2007

Enrollment

2008
Recruiting

2009

Student Services

2010

Career Services

For-profit schools enroll large numbers of non-traditional students who may be low-income and
first generation college students, who require more extensive support and services in order to succeed in
college.2169 ITT employees, for example, indicated in an internal email that over 90 percent of their
students at their Owings Mills campus cannot do basic math.2170

2168

Senate HELP Committee staff analysis of information provided to the committee by the company pursuant to the
committee document request of August 5, 2010. See Appendix 7 and Appendix 24.
2169
According to the recently released GAO Report “Student Outcomes Vary at For-Profit, Nonprofit, and Public Schools,”
for-profit schools enroll a much higher percentage of African-American or Hispanic students compared to other sectors.
Forty-seven percent of the students at for-profit colleges are African-American or Hispanic, compared to 28 percent at public
schools, and 24 percent at private non-profits. The same report indicates that for-profit colleges enroll a higher proportion of
low-income students. At for-profit colleges, 76 percent of students are financially independent and have an annual median
family income of $22,932. These numbers were 34 percent and $61,827 for private non-profits, and 46 percent and $44,878
for public schools. For-profit colleges also enroll a larger number of first generation college students as only 34 percent of

538

 One student, the first in her family to attend college, was told by ITT school administrators after
she attempted to obtain tutoring that, “I needed to watch who I spoke to, and how the people I was
talking to weren’t my friends, that they were coming back to him and saying I was agitating them.” 2171
The student concluded: “In so many ways I feel like my life’s dream has been ripped right out of my
hands.” 2172 Another ITT student complained, “my biggest bone of contention with ITT is that
oftentimes just when you need a little help with a course, no one is available to assist you.” 2173

Career Services
For-profit schools promote themselves as career-oriented skill-focused places. Indeed, much of
for-profit education advertising focuses on “getting the job” after graduating from school. Complaints
help to illustrate student concerns with the career services offered by ITT. A former ITT student wrote
to the Chairman expressing similar frustrations at his school. “After graduating with highest honors
(3.85 GPA), ITT did not get me a single interview. . . . The job packet they would give you was full of
fake jobs, after becoming unemployed a couple of years after graduating ITT, I went to the campus and
grabbed a job packet and it had the same jobs as it did two years earlier.” 2174 Another ITT student filed
a complaint stating that, “During a discussion with Career Services they wanted me to register a
business so that they could have 100% placement for this class.” 2175
A different student complained, “I also want to bring up your career services and recruiters!
Your recruiters guarantee ITT will find you a job. Wrong! That is false advertisement,” and added that
“your school robbed me blind and the fact that your name is now on my resume employers won’t even
look at me!” 2176 The father of another student complained, “The whole experience is suppose to be
exciting and filled with hopes for the future [sic]. Instead it has been turned in to an exhausting
nightmare that he can’t wait to get out of. The career department is suppose to be guiding him through
putting his resume on line and trying to help him find work in his field of interest [sic]. This has not
been happening, due to him being told they are understaffed and overly busy” 2177
A recent news report described a former ITT student with more than $30,000 in debt who has
been unable to find a job he qualifies for in his field that offers more than the minimum wage.2178
According to the student’s mother “I don’t [know] where he’d get a job with the education they gave
him making enough to pay the loans to survive.” 2179 The student added, “I feel like I’ve been ripped off.
I’m embarrassed to tell people I went to that school.” 2180

their students have parents with an associate degree or higher, compared to 46 percent at private non-profits, and 52 percent
at public schools.
2170
ITT Educational Services Internal Email, January 21, 2010, re: Gross Drop Attrition-Response needed by this Friday
1/22 (ITT-0014496).
2171
ITT Educational Services, Letter from Student to Mr. Clark (ITT-00004357 at ITT-00004358).
2172
Id., at ITT-00004359
2173
ITT Educational Services Student Email, May 14, 2008, re: SPF-064-General Comment (ITT-00007386).
2174
Letter from Steven Gossman, April 9, 2011.
2175
ITT Educational Services, Description for Complaint ID #5014171 and Settlement Explanation (ITT-00005144, at ITT00005148).
2176
ITT Educational Services Internal Email, May 16, 2006, re: Complaint (ITT-00005047 at 47,49).
2177
ITT Educational Services Internal Email, January 10, 2007, re: FW: Immediate Attention Required (redaction) (ITT00005216, at ITT-00005220).
2178
Jeff Chirico, “Questions Raised about state’s oversight of for-profit colleges,” CBS Atlanta,. Jeff Chirico May 10, 2012,
http://www.cbsatlanta.com/story/18254503/questions-raised-over-states-oversight-of-for-profit-colleges (accessed June 14,
2012).
2179
Id.
2180
Id.

539

 Internal documents from ITT illustrate the flexible definition schools use to determine whether
students are employed in their field. ITT’s procedure manual defines work in a “related field” as
requiring only “20-49% of time spent on the job using the skills taught in the core courses” of a
student’s program.2181 ITT’s “FAQs on Employment Classification” asks whether working at “a
Blockbuster or an electronics department that sells video games” counts as a related field placement for
their digital entertainment and game design program.2182 The answer provided was “Blockbuster,
GameStop, and other video/game store employments are not black and white and require a significant
amount of analysis, thought, and documentation.” 2183 This raises the question as to whether students
would knowingly take on obligations of $50,000 to $100,000 in student debt to be employed in a retail
job.

Regulatory Strategies
For profit education companies are subject to two key regulatory provisions: (1) that no more
than 90 percent of revenues come from title IV Federal financial aid programs, and (2) that no more than
25 percent of students default within 2 years of entering loan repayment. As discussed above, some
companies, including ITT, lower their reported default rates by placing students in forbearances and
deferments to delay default. Moreover, many schools employ a variety of tactics to meet the
requirement that no more than 90 percent of revenues come from title IV Federal financial aid programs.
In addition to the creation of the PEAKs program and pursuing military servicemembers and
veterans, both of which are discussed above, other 90/10 tactics ITT employs include manipulation of
campus identifiers (OPEIDs) and the creation of scholarship programs.
For-profit colleges must report their 90/10 ratio by assigned Office of Postsecondary Education
ID numbers (OPEID), rather than by campus or corporate owner. Many education companies, including
ITT, have many assigned OPEIDs. One OPEID may consist of a main campus and multiple branch
campuses. Schools with multiple OPEID numbers can shift campuses to different OPEID numbers and
classify them as branches even when they are many States apart. ITT recently merged their 29 separate
OPEID numbers into three. According to the CEO of ITT:
the reasons for doing that certainly relate to our compliance efforts and risk mitigation
associated with all of the different regulatory controls … So, this impacts your CDR,
your 90/10 and all those other metrics that exists, including any new metrics that may
come our way as a result of regulatory change.2184
Department of Education regulations dictate that scholarships awarded to a student do not count
as Federal financial aid, and instead count as other institutional charges on the “10” side of the 90/10
calculation. However, the regulations also require that the scholarships be awarded by an organization
independent of the school. This independence requirement prevents schools from subverting the 90/10
rule by simply recycling Federal student aid money to award scholarships that count on the “10” side.
However, several companies that operate for-profit colleges have designed scholarship programs that
appear to be awarded by outside non-profit organizations, but where evidence suggests that control of
the scholarship program comes from within the company. In these cases, the money used to fund the
2181

ITT Educational Services, April 29, 2010, Career Services Graduate Employment Definitions: CS-2 Procedure Manual
(ITT-00065475).
2182
ITT Educational Services, FAQs on Employment Classification (ITT-00065499, at 65501).
2183
Id.
2184
ITT Educational Services, “ITT at Barclays Capital Inc Global Services Conference,” Lexis Nexis, May 12, 2011.

540

 scholarship comes from sources connected to the school, and the awards are only given to students at
that particular school.
ITT created the “Champagne Scholarship,” a “new scholarship named for and funded by [the
company’s] previous Chief Executive Officer, Renee Champagne.” 2185 A Champagne scholarship is an
award of $3,000 available for students who are enrolled full-time with a $0 expected family
contribution.2186 A former employee who has spoken publicly about her experience stated that nearly
every student who applied received the scholarship.2187 Documents indicate that the company closely
tracked the number of Champagne Scholarships awarded by campus.2188 Over the course of a year, the
company planned to award a total of $21 million in scholarships. That amount is enough to move ITT’s
overall 90/10 ratio by more than 1 percent, a significant amount if a school were to be in danger of
exceeding 90 percent.

Enforcement Actions
In 2005, ITT paid $730,000 to settle a lawsuit with the State of California in which employees
charged that the company had inflated students grade point averages so that they qualified for more
financial aid from the State of California.2189 California’s Cal Grant program requires students to have a
certain grade point average to be eligible for financial aid. ITT acknowledged that their actions resulted
in 49 students receiving larger financial aid awards through the State Cal Grant program than they
otherwise would have received.2190
On May 18, 2012, ITT received a Civil Investigative Demand from the U.S. Consumer Financial
Protection Bureau.2191 The purpose of the investigation is, in part, “to determine whether for-profit
postsecondary companies, student loan origination and servicing providers, or other unnamed persons
have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or
origination of private student loans.” 2192

Conclusion
ITT is one of the most expensive companies examined by the committee, and it is not clear that
the value of the education justifies the cost. The cost of attending ITT is so high that the company has
created its own loan program to enable students to borrow money in excess of Federal lending limits.
While the retention rates for both the Associate and the Bachelor’s program are slightly better than
average, the company has a high rate of student loan default, with 26 percent of students defaulting
within 3 years of entering repayment. This likely reflects the high cost of the programs offered, and an
2185

ITT Educational Services, Champagne Scholarship Fund (ITT-00060529); See also ITT Educational Services, July 24,
2009, ITT Technical Institutes Scholarship Update (ITT-00052388).
2186
ITT Educational Services, Champagne Scholarship Application (ITT-00003045).
2187
Rashidah Smallwood interview with HELP Committee staff.
2188
ITT Educational Services, September 29, 2009, Q3 Financial Aid Update (ITT-00060728).
2189
Doug Lederman, “ITT, Calif. Settle False Claims Lawsuit, Inside Higher Ed., October 18, 2005,
http://www.insidehighered.com/news/2005/10/18/itt (accessed June 14, 2012).
2190
ITT Educational Services, ITT 8-K SEC Form, September 30, 2005, http://www.secinfo.com/ds4r4.z1z.htm (accessed
June 14, 2012).
2191
ITT Educational Services, ITT 8-K SEC Form, May 22, 2012,
http://google.brand.edgaronline.com/default.aspx?companyid=4807 (accessed June 14, 2012).
2192
Id.

541

 inability on the part of some students to find jobs that allow them to repay the debt they incur. The
company makes this work by utilizing some of the most disturbing recruiting tactics among the
companies examined, and by taking very creative approaches to complying with the 90/10 limitation on
revenue received from Federal financial aid programs. Meanwhile, the company devotes the largest
share of revenue to profit of any company analyzed at 37 percent. Taken together, these issues cast
serious doubt on the notion that ITT’s students are receiving an education that affords them adequate
value relative to the cost, and calls into question the $1.1 billion investment American taxpayers made in
the company in 2010.

542