SEC Charges ITT Educational Services With Fraud 85
mpicpp writes with news that ITT Educational Services, the company that operates for-profit college ITT Tech, has been charged with fraud over its student loan programs. The U.S. Securities and Exchange Commission accuses the company of concealing poor financial performance from its investors.
ITT formed both of these student loan programs, known as the "PEAKS" and "CUSO" programs, to provide off-balance sheet loans for ITT’s students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT’s guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT’s exposure to these programs was much more limited.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT’s guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT’s exposure to these programs was much more limited.
Why is ITT even eligible for federal student loans (Score:2)
I realize that this article is about private loans, but shouldn't there also be some standard for federally-guaranteed loans too?
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What standard are you talking about? Education, especially in today's world is paramount to the average person's success, not the few million and billionaires who bypass it is the exception not some new rule.
Government based sudent loans already have the security of never being discharged, and they can take your tax refunds and garnish your wages, therefore there is plenty of security there already without having some sort of credit worthiness standard like other loans have.
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I think we're talking about regional accreditation (as opposed to national accreditation, which is worthless). Any so-called college that isn't regionally accredited should be ineligible to receive money from public student loans. And that should be the minimum standard, of course -- for all I know even the worst regionally-accredited schools might not deserve to be eligible either.
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Ok, I have no issue with that.
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I'm guessing your question wasn't real, but a political comment. Here's the real answer [ed.gov], anyway, which was found using a simple Google search. Yes, there are standards for Federal student aid programs.
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Because Stanford, MIT, and Yale graduates are far less likely to end up in default on their loans.
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It is A criterion. Graduation rate and the usefulness of the resulting degree also factor in. Value for money plays a role as well.
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No, it isn't. I've already provided a link elsewhere here which spells out the requirements to be an FSA eligible institution. The rate of default is immaterial.
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It is not a criterion that they use, I never said it was, nor did anyone in this thread. Rather I advocate it as a criterion among others.
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Because Stanford, MIT, and Yale graduates are far less likely to end up in default on their loans.
They are also more likely to actually graduate, and when they do, the diplomas are actually worth something. ITT, and other diploma mills, dupe poorly prepared students into taking out loans, handing it over to the school, and then have little concern for whether their students learn anything, earn any diploma or credential, and have any prospect for a higher income that can justify the loan repayments.
Sallie Mae needs to be scaled back, and the loans should only be available to students that are prepared
Re:Why is ITT even eligible for federal student lo (Score:5, Funny)
These weren't federal loans, as far as I can tell from RTFA. In short the allegations say that this is what happened:
1) The private loan market cratered
2) ITT said, "No problem we'll sell loans to ourselves, backed by investors, and we'll guarantee those loans" (see equity backed mortgages, for a similar case study)
3) Lots of loans started to default
4) ITT did math and said "Oh Nos", if we pay off those guarantees it's going to look bad. I know, let's pay those loans ourselves for a bit instead, I'm sure they will start paying again.
5) They didn't start paying again
6) They had to come clean to investors, stock tanks
6) They got caught in the coverup
7) SEC sues, stock tanks somemore
8) (profit)*-1
Min
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Why should it not be eligible for federal student loans — so long as that travesty exists, that is?
A better question may be, why do "federally-guaranteed loans" need to exist in the first place...
Another victim of the government monopoly...
Re:Why is ITT even eligible for federal student lo (Score:5, Insightful)
Exactly. If the question is "Why is higher education so expensive," that is the answer.
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ITT and Phoenix are products of the federal loan industry. College was affordable before federal loans. The administrators scream and wail about losing state funding and blame tuition rises on that, but look at the fucking temples to education that are being built. How does a lazy river [bestcollegereviews.org] contribute to education? Climbing walls are nice, but why am I subsidizing federal loans for students to have a better climbing wall than education. I'm not quite at the "pole barn is optimal" level, but half of the staff an
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Ozarks is a bit worse off, at only $427M for 1300 students. They're only 4x better off than we are. Given that their students are required to work for the college, they can make up that difference.
So in order to manage to do what t
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By what standard? Cost of college has always been high. Federal loans made college more accessible. If your theory is based on generated demand then you have discounted the fact that a seat not filled by a in-state resident will be filled by an out-of-state or foreign student who pay more tuition anyway.
The amount of student loan debt is at an all time high and I blame allowing student loans to be used to finance attending for-profit "educational" companies that a
Re:Why is ITT even eligible for federal student lo (Score:5, Insightful)
"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..." Exactly. If the question is "Why is higher education so expensive," that is the answer.
Universities are at this point, are now citadels of management people:
http://www.washingtonmonthly.c... [washingtonmonthly.com]
http://reclaimuc.blogspot.com/... [blogspot.com]
Lotsa highly paid MBA types, and their staff.
Research - once upon a time, a lot of research was done at the corporate level. Most has been shifted to Universities now. And even though it brings in research dollars, infrastructure for it has to be built, and government research money is focused on the work at hand, not building the infrastructure.
The education system has been groomed for years that the only acceptable path is the 4 year Bachelor's, perhaps followed by a Masters degree. Any other form of education is considered woefully deficient.
So today, parents look at a college education as grades 13 through 16.
Demand is extremely high.
So why the crisis now?
We're at a wobbly sort of point, where while the demand is still there, but the educational supply cost has outpaced the ability of many if not most people's resources to repay. You graduate with the equivalent of a small mortgage, going for an entry level job in your field (and woe onto you if you are in another field beside engineering) making little, and the University is already badgering you for donations. That is a hellava mess.
The cost of a college education is almost at the point of not being worth it.
The federal loan system is in the mix of problems, but is merely following the lead of University trends, established during WW2 and continued to the present day. The overly managed structure is a more recent phenomenon, as managers in my experience always find that more managers are needed.
I do doubt that the research aspect of present day higher education will ever go away. As for the fact that there are more managers and their support staff now than educators, might be something that can be worked on.
That's a little more than a Fox News soundbite, but despite it all, the federal loan program is more reacting to than creating the problem.
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I think you also missed that states around the US have been reducing their support for universities. This was especially true after the depression started in 2008.
As for research, the private sector has been smaller than the public sector in research funding since the 60's [vox.com], and federal research funding hasn't really changed as a portion of total research funding, so I really don't think that makes sense as a cause, except in that the government has been reducing its research spending.
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Also, the loan program helps add to the problem. If it weren't for the federal loan program, it would be far, far harder for schools to charge students the tuition they charge, so either they would lower their tuition, educate fewer students, or manage to lobby their states to invest more in the public university system. Loans aren't the sole cause, but they're definitely a contributing factor of high tuition.
No doubt. Its a worm ouroboros, because each aspect follows the other. If loans were not easy to get, if parents were not considering their children failures if they didn't have a bach - and more recently a masters, if Universities didn't place more emphasis on research and weren't drowning in middle managers and bean counters - it might not be the way it is now. Its a recipe that isn't sustainable
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"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..." Exactly. If the question is "Why is higher education so expensive," that is the answer.
Don't be ridiculous. The loans don't exist because school is prohibitively expensive. I finished school just with the current group of "I can't pay my student loan" cry babies. I paid for all of my education, and have been supporting myself since I was 16 years old. My student loan total for 3.5 years (I graduated early) was $12,000. That included tuition, books, and my apartment minus the costs I paid myself by working throughout school. I received $1000 total in scholarships and did not qualify for
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They apparently didn't teach reading comprehension or logic.
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The expected total expenditures for a student at my university when I graduated back in 2003 were in the range of $19,000 per year in today's dollars. Estimated total costs for students at the same university in the upcoming school year are about $35,000.
There really is no comparison here. School is vastly more expensive today than it was even 15 years ago. And that is tremendously unfair to current students.
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The expected total expenditures for a student at my university when I graduated back in 2003 were in the range of $19,000 per year in today's dollars. Estimated total costs for students at the same university in the upcoming school year are about $35,000.
There really is no comparison here. School is vastly more expensive today than it was even 15 years ago. And that is tremendously unfair to current students.
Is that all expenses or just tuition expenses? The university has no control over outside expenses.
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Re:Why is ITT even eligible for federal student lo (Score:5, Insightful)
Because, it is better for society to have an educated populace, and not just have the children of the wealthy be able to afford to have one.
Another person operating under the delusion they sprang into existence a fully formed human without any of the benefits provided by society.
Did you go to public school? Did you enjoy the benefits of living in a mostly lawful society? Do you drive on public roads? Do you use any public infrastructure like water?
Do you honestly believe you exist through sheer force of your own will and that you did not reap the rewards of your parent society? If so, you should probably seek some therapy, because you're delusional.
Because a society in which only the children of the wealthy can afford an education, and everyone else is relegated to not having one and working in medial tasks .. well, that society is a complete shithole.
So essentially you are saying "I wish to live in a society in which we have the wealthy and the peasants, and if the peasants wish to rise above their station, too damned bad".
You may want to live in that society, but the rest of us don't.
What princely patron paid for your smug self to get an education and rise up from the gutter? Or are you just some rich kid who thinks having daddy pay for your education is the natural order of things?
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I'm not going to disagree on that, but that doesn't mean that student loans are anywhere near a good answer.
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Well, what are your options?
Government backed student loans.
Convincing private lenders to make a loan to some kid out of highschool with no credit history or job.
Free tuition.
Suck it up if your parents can't afford to pay.
If governments didn't back student loans, there's no way in hell banks would give them. And then you're back to the realization that without government backing of the loans, or free
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And this is the real crux of the issue - you have to remember a student loan is for a rather large amount of unsecured credit. Anywhere from luxury car loan to low end house mortgage. And at least those two are secured loans because there is an asset associated with it.
Banks aren't stupid. They know a student loan has poor ROI - the interest rate is legislated, you're easily loaning anywhere from $10K to a good chunk of a
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But considering that the loans are effectively co-signed by a AAAA organization, the interest rates are outrageous.
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But considering that the loans are effectively co-signed by a AAAA organization, the interest rates are outrageous.
What part of "you cant repossess an education" therefore rates compensate the lender for that additional risk don't you understand?
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The part where the U.S. government is on the hook for the default, not the lender. Believe it or not, the U.S. government is still AAAA rated.
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This is an absolutely fantastic idea. :)
Of course, there is no way the lobbyists for the publishers would every allow it to happen. :(
Free Tuition is better for citizens and budget (Score:2)
Because, it is better for society to have an educated populace, and not just have the children of the wealthy be able to afford to have one.
Did you go to public school? Did you enjoy the benefits of living in a mostly lawful society? Do you drive on public roads? Do you use any public infrastructure like water?
It is absolutely better to have an educated informed citizenry, especially in a democracy that requires informed decisions through voting to function properly. I think very few disagree with that.
What I disagree on is the need for loans. Loans are all about making money for the financial industry and even the federal government (used by politicians to "balance the budget" on some of their terrible decisions with war, social security, tax breaks, etc.). We should all agree that education is a fundamental inv
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The majority of student loans (about 90%) are federal. The Federal government gets interest on those loans, that money goes to Obamacare which is partially how it got passed in the first place.
So why are you against Obamacare funding? Don't you like things like roads and police? You have to pay for services from the government you want.
Loans can't go away now, or be forgiven because that is a major funding point for Obamacare. I guess you didn't get to read the bill even after they passed it.
The bigger question is: why is most of our healthcare funding coming from 20-somethings just trying to earn a college degree and a better life? Why isn't the baby boom contributing more, for example?
Aside from ethical problems, here's another: that amount depends on people going to college. If there's a sudden swing in people not going to college, or at least staying at a local community college and paying cash, that money is now gone. As I said in my earlier post, this money on the backs of the young tryin
Interesting... (Score:4, Insightful)
It's telling that when for-profit education screws over INVESTORS then a federal attorney goes after them.
However, when they screw over actual individuals the same groups act like they don't see it and they don't care.
You sure can see where the values lie in the U.S. right now.
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individuals meaning students... sorry that wasn't too clear.
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Or not. This seemed to be the real story: "the collapse of the private student loan market".
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Mod this up. THIS right here is the story. After the housing market collapsed, the only way to keep cheap credit flowing into the hands of people was through student loans.
ITT-Tech is likely just the first of what will be at least a few more enforcement actions to come.
Re:Interesting... (Score:5, Insightful)
That was my thought exactly. I saw the headline and thought "ITT charged for fraud? Great, finally, ugh, ripping off students like that...wait...SEC not...I don't know...I don't think the Department of Education has an enforcement division, so, the FTC? But no, SEC...and yeah, fraud against investors, not students."
The message is loud and clear: "Citizen, fuck thyself."
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Actually, I was recently surprised to learn that the Department of Education does have an enforcement division, and that they are armed with Glock 27s and Remington shotguns.
Here's an article with some of DOE's purchase orders over the past several years:
https://www.muckrock.com/news/... [muckrock.com]
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I'm an investor, so yes.
(Just kidding immigrants do it for cheaper.)
Re:Interesting... (Score:4, Interesting)
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No, what's telling is your complete and utter ignorance (or bias so strong it amounts to the same thing) - the various state AG's and the Feds have been going after these schools in increasing numbers over recent years. (The recent shuttering of Corinthian being but one example.)
I'll have to find a more reputable university (Score:1)
I just put in my application to DeVry today!
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How good/bad is DeVry? I remember getting a full court sales pitch from them in 1984 when I was a senior in high school.
I want to guess "as bad as ITT" but then again, they've been around for at least 30 years.
I also wonder if these kinds of "schools" weren't actually semi-legitimate when there were a lot more tape-monkey type jobs in "IT" where a full-blown CompSci degree was overkill for a lot of low-end maintenance tasks like spooling reports, loading tapes and disk packs, etc. People with an innate ab
so they didnt just defraud their students... (Score:1)
I regret attending that shitty diploma-mill everyday.
Old materials, older equipment. Incompetent staff and overly aggressive recruiters.
Fuck ITT, and fuck all other "schools" just like them
Apologies to Dickens (Score:1)
It is far, far better thing for ITT to defraud investors than students.
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The SEC is going after them for things they did to the investment market.
Exactly. The SEC couldn't care less about the students. But if enough investors make sufficient noise, they act. Next we'll hear how ITT was an isolated example.
There's plenty more scam schools where ITT came from.
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Next we'll hear how ITT was an isolated example.
No we will not. ITT is not an isolated example. The amount of bad debt in the student loan market is almost as bad as the bad debt from the housing market crash.
Not surprisingly, Zero Hedge was out ahead of the pack on this topic. (Dated 2012)
http://www.zerohedge.com/news/... [zerohedge.com]
The real problem is the students (Score:1)
The reason why nobody learns anything at these for profit schools is that they are scraping the bottom of the barrel for their student body. You can have the best teachers in the world along with first class facilities but if the students are unmotivated it won't make a bit of difference. If you took the students out of ITT and put them into any decent college the vast majority would likely flunk out within a year.
The problem with constantly spending more money on education is that education only works for