WASHINGTON -- Closures of high-profile, for-profit schools such as ITT Technical Institute have left thousands of students in limbo while raising questions about the future of an industry that provides much of the training for vocational, technical and other mid-level skilled jobs.
For-profit schools are facing challenges on several fronts after a period of meteoric growth.
Federal and state officials have filed lawsuits or opened investigations into allegations of predatory lending and false advertising by some leading chains. At the same time, the Obama administration is trying to reshape the industry by pushing new regulations that would tie student debt limits to job prospects and make it easier for students to have their loans forgiven if they were defrauded -- with the school potentially on the hook for the tab.
For-profit schools began aggressively expanding their numbers and enrollments in 2000 as online education became more widespread, enrolling in particular low-income, minority, and part-time students.
Those schools ratcheted up their growth even more after the recession, when many Americans sought new skills in hopes of finding better jobs in a tough labor market. Wall Street drove education company stock prices sky-high.
The problems that followed, including high default rates on student loans and accusations of predatory lending, triggered a crackdown by the Obama administration.
ITT's parent company blamed the administration's actions for the closure of the chain's 137 campuses last week, leaving 35,000 students without classes to attend.
Less than 18 months ago, thousand of students at another high-profile, for-profit chain were forced into the same situation. Corinthian Colleges Inc. closed the doors on its remaining campuses after government allegations of falsified job placement rates.
Many students at ITT, Corinthian and other for-profit schools paid for their education by taking out federally backed and private student loans. And though borrowing has shot up at all colleges and universities in recent years, students at for-profit schools led the way.
Their federal student loan originations increased tenfold from 2000 to 2011, according to new research from the Federal Reserve Bank of New York.
Those students were more likely to default. Many either didn't finish school or graduated but were unable to land jobs in their field.
"They've done their part of the bargain. They took out the loans to pay for their education. They graduated, and what the school promised them wasn't true," said Debbie Cochrane, vice president of the Institute for College Access and Success, a nonprofit group that advocates for broader access to higher education.
Since 2004, annual default rates for students at four-year, for-profit schools have been two to three times those of public or nonprofit private institutions, the New York Fed researchers found.
Despite the high-profile closures, the industry is still large. In 2015, there were about 3,500 for-profit institutions, including two-year and four-year vocational and technical schools. That's an increase of 36 percent since 2000, according to the New York Fed data.
About 1.6 million students attended those schools. Enrollment nearly quadrupled from 2000 to 2011, with a surge after the recession began in late 2007.
Although enrollment has declined since 2011, a sharp increase in heavily debt-saddled students has drawn the attention of consumer groups and activists who have accused the schools of predatory lending.
Steve Gunderson, president of Career Education Colleges and Universities, a trade group for the for-profit college industry, acknowledged there have been problems.
"This sector grew too fast and too much during the recession. We practiced open enrollment and admitted students even if they weren't academically prepared," he said. "A lot of students dropped out, had debt and default. We shouldn't walk away from that."
But Gunderson and others in the industry have said the Obama administration has unfairly targeted for-profit schools through enforcement actions and new regulations.
The moves threaten opportunities for people to get trained in fields that public and private nonprofit colleges often don't offer, such as truck driving, cosmetology, automotive repair and medical office work, said Gunderson, whose association does not include ITT Technical Institute.
Last month, the Education Department barred ITT from enrolling new students who used federal financial aid because of "significant concerns" about the chain's operations and financial viability.
In 2015, the Securities and Exchange Commission filed fraud charges against ITT Educational Services and the company's two top executives. The SEC said ITT hid from investors the poor performance and looming financial impact of two private student loan programs the company guaranteed.
And in 2014, the Consumer Financial Protection Bureau sued ITT for predatory lending, accusing the company of pushing students into high-cost private loans that were likely to end in default.
Other big players are also facing problems. In January, the Federal Trade Commission filed suit against the operators of DeVry University, alleging its ads deceived potential students about their job and earnings prospects. And the FTC has been investigating the University of Phoenix for similar deceptive marketing practices.
Business on 09/15/2016