ITT Tech's Bankruptcy
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Student Life

ITT Tech's Bankruptcy

The Indiana-based for-profit educational institution filed for bankruptcy on Friday, September 16, 2016.

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ITT Tech's Bankruptcy
Virginia Meyers

At first glance, for-profit colleges seem a great third option from the traditional non-profit college and community college paths for those who want to continue or finish their education. According to Kevin Carey of the New America Foundation, who wrote in a 2010 column in The Chronicle of Higher Education, “For-profits exist in large part to fix educational market failure left by traditional institutions, and they profit by serving students that public and private nonprofit institutions too often ignore...There's no doubt that the worst for-profits are ruthlessly exploiting the commodified college degree. But they didn't commodify it in the first place.”

Not long ago, for-profit educational institutions were the next-big-thing on Wall Street. Apollo Global Management, a private equity firm that specializes in buyouts and purchases of distressed securities, took over Apollo Education Group Inc and its subsidiary for-profit Unviersity of Phoenix through a $1.14B deal. Private equity firm Cereberus Capital Management LP loaned $100M in 2014 to ITT Technical Institute. This same ITT Technical Institue, a for-profit technical university headquartered in Indiana, filed for bankruptcy on Friday September 16, 2016. ITT moves to shut down its 137 technical college campuses in 39 states, leaving 35,000 students with unfinished degrees and 8,000 employees out of work.

ITT Technical is not the only for-profit educational institution that found itself in a quagmire of economic difficulty. In 2015, Corinthian Colleges filed for bankruptcy and closed 28 schools without appropriate arrangements for its 16,000 students who are left without classes and federal financial aid transfer appeals. For-profit institutions only make up 12% of enrollement in the higher education sector, but students at such instituitons take up 25% of federal financial aid and make up half of all student defaults. If one looks at education as a financial entity, for-profit colleges are like risk-seeking businesses that capitalizes on students who receive federal financial aid (which, by the way, comes from taxpayers). These businesses reap large and consistent profit margins, the majority of which spent on marketing rather than instruction; according to a Times opinion article, Apollo spent more on its marketing budget than Apple. These for-profit schools also receive billions of dollars from the government in the form of subsidies and take away the amount of financial support available for non-profit state colleges. Research from the Roosevelt Institute shows that many for-profits are involved in murky swap deals that invite scrutiny over their financial states.

It might be more reassuring to know that the federal government has amped up its restrictions against for-profit colleges. In October 2015, the Defense Department removed the University of Phonenix from the list of approved institutions to recruit on military bases, which prevent troops from using federal money for classes at University of Phoenix. However, despite all the flaws in the for-profit system, one must recall that the major reason for bankruptcy of many for-profits is the withdrawal of federal financial support. When the federal government enforced tighter regulations that require graduates from such institutions to find gainful employment (so that student debt can be repaid), institutions with subpar educational standards suddenly found themselves to meet the government’s requirement. In August 2016, the US Deparment of Education banned ITT Technical from enrolling new students who require federal aid, which effectively closed two-thirds of ITT’s source of revenue. Like another for-profit education operator, Education Management Corp, ITT found itself under government investigation for fraud and misleading marketing tactics to deceive students. This raises qustions regarding the government’s role in causing students at for-profits left hanging with no degree and loans to repay. One can only hope policy makers remember that students, after all, are the ultimate victims in this positive feedback loop of commodification of education and overblown debt.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
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