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Wednesday, September 7, 2016
Obama administration kills ITT Tech, stranding 40,000 students and
destroying 8,000 jobs
Tyrants throughout history have known that beheading their enemies and placing the heads on pikes at the gates of their capitals sends a powerful message to everyone else. Behave yourself as we dictate, and you may survive. Cross the king, and you are a dead man.
Something very similar, but updated and taken to a vast financial level, happened to ITT Tech, the privately owned trade school/university. As the Wall Street Journal explains, it crossed the king (in this case, the Obama Department of Education):
ITT Technical Institute folded on cue Tuesday after the Obama Administration issued a regulatory death warrant last month. ITT investors must be wishing they had ponied up for political protection like Laureate International Universities, the for-profit college that paid Bill Clinton $17.6 million to serve as its "honorary chancellor."
ITT's decision to close all of its 130 some campuses-stranding 40,000 students and 8,000 employees-comes after the Education Department barred new enrollees from tapping federal aid, delayed loan reimbursements and raised its collateral by $153 million. ITT had a mere $78 million on hand at the end of June and no way of meeting the Administration's cash demand.
Note that these federal government actions are the product of bureaucratic discretion. The DoE demanded a ransom of an additional $75 million in order to stay in business. The point of the demand for collateral is to protect students and the taxpayers lending to them from a possible, at this point theoretical, harm arising from a collapse of the school. But the remedy merely cut to the chase and imposed the harm directly:
Department officials claim they are merely trying to protect students and taxpayers even though the SEC and CFPB allegations involve ITT's private loan program. Many ITT students won't be able to transfer to other schools, and the college's closure means that nearly $500 million in student debt could be wiped out. ITT has put up only $90 million in collateral to cover discharged loans. Taxpayers would be on the hook for the rest.
There are a lot of interests involved in bringing down ITT Tech:
ITT's execution follows the usual pattern: A pack of regulators attack from all angles-i.e., the Accrediting Council for Independent Colleges and Schools, Securities and Exchange Commission, Consumer Financial Protection Bureau and state Attorneys General-and try to run their target out of business before it can raise a legal defense. None of their charges have been proven in court. (snip)
Although Education Secretary John King claimed that ITT could have stayed in business by taking "corrective action," liberals appear to have plotted the company's assassination long ago. Rohit Chopra worked at the CFPB and the Center for American Progress before signing on as a special adviser to Mr. King in January. In June 2015 Mr. Chopra warned ITT shareholders that the department "can revoke eligibility for federal student aid with minimal notice" and that "ITT may be forced to post even more collateral to maintain eligibility. . . . Unless ITT makes improvements to management culture, the board of directors, and executive compensation, it may be unable to survive over the long term."
Immediately after the department imposed its lethal sanctions on ITT, Mr. Chopra departed for the Hillary Clinton campaign. Maybe he'll be tasked to answer questions about the Clintons' lucrative ties to Laureate.
Laureate had the good sense (attention: American business, this is the message) to pay 17 million dollars to the bank account of the family that controls the Democratic Party.
Mrs. Clinton requested that a Laureate representative be invited to a State Department dinner in 2009-while the rest of the for-profit industry was on the Administration's menu-because it was "the fastest growing college network in the world" and founded by Mr. Becker, "who Bill likes a lot." Laureate has 87 campuses in 28 countries, most in the developing world, so the State Department's imprimatur could be useful.
Yet the Obama Administration's College Scorecard shows that its five U.S. campuses have graduation rates comparable to ITT's. However, student debt levels are higher-$31,976 at Walden University and $43,417 at the NewSchool of Architecture and Design in San Diego compared to about $26,000 at ITT schools.
A report by the Senate Education Committee in 2012 found that Laureate devoted more of its revenues to marketing and profit (54%) than the industry average (42%). While progressives like Mr. Chopra howl about how companies determine executive pay and market-based incentives, Laureate says it seeks to align "executives' interests with those of our investors" and be competitive in the industry.
We know that Mr. Clinton was paid more than what regulatory filings show ITT CEO Kevin Modany has earned during the last five years (assuming no bonus this year). Laureate investors must have believed that the services Mr. Clinton rendered justified his rich remuneration. Readers can reach their own conclusions about for-profits and double standards.
Any business with an exposure to federal regulations (which includes every sizable business in the country) now understands that it exists at the sufferance of the politicians who control the federal bureaucracy. As a practical matter, this means Democrats only, for the federal bureaucracy is deeply politicized and attached to the party of big government for solid, practical, self-interested reasons.
This is banana republic territory, and we are already well into it. Your interests, my interests, and the interests of the ITT Tech students (some of whom face devastation of their career plans and finances) count for nothing.