January 21, 2016

Blockbuster Lawsuit Claims Abusive Practices Persist at ITT Tech


A federal whistleblower lawsuit against troubled ITT Tech, unsealed last week, reads like a greatest hits of abuses by America’s predatory for-profit colleges.  The suit alleges that ITT has repeatedly defrauded taxpayers by taking billions of dollars in federal student aid while systematically deceiving students and violating federal regulations.

The complaint, first described today by MarketWatch, was filed last April in federal court in Tallahassee, Florida, by Rodney Lipscomb, who served as the dean of academic affairs at ITT’s Tallahassee campus from 2011 until early 2015. The case was unsealed on January 15 after the U.S. Justice Department declined to join the case on Lipscomb’s side.

Lipscomb claims, among other things: that ITT directs recruiters to use coercive tactics to pressure students into enrolling; that ITT admits students who will not be able to succeed at the school; that ITT unlawfully pays what are, in effect, sales commissions to recruiters; and that ITT lies to students about the financial obligations they will assume, about the transferability of ITT credits to other schools, and about the jobs students can expect to get after graduating.

The awful practices and incidents that Lipscomb alleges echo findings and allegations from prior government and media investigations of the for-profit college industry in the past five years.  But what is charged remains shocking, not only for the outrageousness of the abuses described, but also because all of the conduct is alleged to have occurred not in some distant past, such as the previous decade, when for-profit colleges, freed of meaningful oversight, brazenly engaged in a torrent of waste, fraud, and abuses with taxpayer dollars and students’ lives. Instead the conduct allegedly occurred from 2011 to 2015, after the industry had become controversial and the subject of intense scrutiny and policy battles in Washington, after President Obama and other leaders had warned for-profit colleges that, going forward, they would be held accountable for misconduct.

Lipscomb’s allegations suggest that ITT Tech officials didn’t much care; they may have seen evasion of the rules as still the best way to keep bringing in tens of millions in taxpayer dollars every month.

The lawsuit’s allegations

These are just some of the abuses that Lipscomb claims occurred:

  • According to Lipscomb, ITT Tallahassee admitted every high school graduate who applied, regardless of concerns about whether the student could succeed in the program. Example: A student applied to the ITT computer networking program, which requires students to read codes and identify plugs and wires by color in order to repair computers. The student was blind. Lipscomb raised concerns about whether the ITT program would actually help this student, but ITT’s recruiting director told him “it was not ITT’s problem” to dissuade the student. Lipscomb says he contacted a Florida disability agency and was told that federal law did not require ITT to admit the student, because he could not perform this computer repair work even with a reasonable employer accommodation. But a supervisor reprimanded Lipscomb for making that inquiry, and the student was enrolled. He dropped out after four weeks with an entire academic quarter’s worth of loan debt, no degree, and of course no job. (Now-defunct Corinthian Colleges faced similar criticism after Republic Report exposed in 2014 that its Everest College had admitted a student with apparent intellectual disabilities to its criminal justice program.)
  • ITT recruiters in Florida were instructed by management to tell prospective students that if they enrolled in ITT’s criminal justice program, they could get jobs doing forensic science work like they saw on “CSI Miami.” In fact, the ITT program did not train students to do such work, and Lipscomb claims that upon discovering what recruiters were saying, he and Kysha Fedd, the campus chair of the criminal justice program, went to classrooms to inform current students, many of whom “became upset … and dropped out,” but still had to pay back their loans. Fedd resigned, saying “she could ‘no longer work for the devil’ and that she was extremely disappointed that the students were leaving ITT with almost $50,000 in debt and no job prospects except to work as a security guard in the mall.” (These kinds of allegations of a deceptive criminal justice program harming low-income students have been made with respect to other for-profit colleges, such as the awful Westwood College.)
  • ITT Tallahassee subsequently shut down its criminal justice program.  So the director of recruiting told his staff that prospective students interested in criminal justice “should be steered to the business management program and told that they will be able to open their own private investigation business, even though that is not what the Business Management program is designed to train students to do.” (Such inappropriate steering has been charged by, among others, students at EDMC’s Art Institutes and former employees of the notorious EdSoup call center.)
  • ITT managers instruct the school’s financial aid counselors to tell students to report less income than they actually have, or more dependents than they have, in order to increase federal financial aid. This allegation mirrors charges leveled in 2011 by a former Texas ITT financial aid staffer, Rashidah Smallwood.
  • ITT managers also instruct financial aid counselors to tell students that “nobody pays back the loans anyways” — the same shocking advice exposed in a 2010 Government Accountability Office undercover investigation of 15 for-profit colleges.
  • ITT’s Southeast regional manager Deborah Brent (no, not Wernham Hogg regional manager David Brent) and other officials instructed ITT recruiters “to ‘probe’ potential students about ‘what causes pain in their lives’ and then to ‘dig in’ to that pain.” This allegation echoes media and government reports dating back to 2011 that ITT, Kaplan, and other for-profit school recruiting documents directed recruiters to imagine a “pain funnel” and to “poke the pain” of low self-esteem prospects.
  • ITT Tallahassee held weekly “show meetings” where managers required recruiters to discuss their efforts to sign up students. When one recruiter expressed concern about enrolling a single mother who lived two hours from campus, the campus recruitment director instructed this subordinate “that it was not his role to judge what would be best for the student” and to instead say “two hours isn’t really insurmountable.” After Lipscomb complained about the tenor of these meetings, his superiors barred him from attending them.
  • ITT would induce prospective students, many of them low-income, to enroll by offering them “free laptops.” In fact, the laptops were far from free, because they replaced the textbooks whose $800 cost had been built into student tuition, and a colleague of Lipscomb discovered that ITT was paying just $190 for the laptops. Moreover, only after ITT had distributed the laptops did it inform campuses that a student had to earn 36 credits before actually owning the laptop. One Tallahassee student who withdrew because of a medical emergency had his laptop confiscated, and when he re-enrolled the very next quarter, ITT charged him $350 for a replacement.
  • In 2013, ITT announced it would start awarding a new “Opportunity Scholarship” to help students cover their costs at the school.  Around the same time, Lipscomb and his colleagues applied for and received grants from a Florida non-profit group to help students pay their ITT tuition. They later discovered that ITT was eliminating Opportunity Scholarships for students who got the private grants, basically defeating the purpose of those grants but putting more money into ITT’s coffers.
  • ITT pressured students to stay enrolled by telling staff to “keep the student’s financial aid ramifications in front of their face” and threatening to refer student loans to collections agencies if they dropped out, while explaining that if they stayed in school, the loans would be deferred.
  • After Lipscomb filed repeated complaints about these practices and others, ITT’s national Director of Human Resources & Counsel, John Walls, traveled from the company’s Indiana headquarters to meet with Lipscomb and regional manager Brent. According to the complaint, “Walls told Lipscomb that no deceptive practices were being used at ITT, none of Lipscomb’s complaints had been substantiated, and to stop sending e-mail complaints. Walls also told Lipscomb that Lipscomb was ‘not an attorney’ and therefor[e] was not qualified to claim that any laws or policies had been violated.”  A few months later, Lipscomb informed the campus director that he was planning to file a complaint with the Florida attorney general. A week after that, in January 2015, the campus director fired Lipscomb.

ITT’s record

To be clear, Lipscomb’s allegations are yet unproven, and ITT has denied them. Lipscomb’s lawyer told Marketwatch that they had not decided whether to continue the suit in the wake of the Justice Department’s decision not to join.  But ITT, which has been getting as much as $1.1 billion per year from federal aid, about two-thirds of its revenue, was already in plenty of legal hot water.

Last May 12, the Securities and Exchange Commission sued ITT, its CEO Kevin Modany, and ITT’s former CFO, charging that the company “made various false and misleading statements and omissions to defraud ITT’s investors by concealing the extraordinary failure” of its student loan programs.

The Consumer Financial Protection Bureau also has sued ITT, charging in a 2014 complaint that “ITT subjected consumers to undue influence or coerced them into taking out ITT Private Loans through a variety of unfair acts and practices designed to interfere with the consumers’ ability to make informed, uncoerced choices.”

The attorney general of New Mexico has sued ITT for alleged “unfair, deceptive, and unconscionable acts and practices … in connection with the advertising, marketing, and selling of educational services” to prospective students. At least thirteen more state attorneys general — from Arkansas, Arizona, Connecticut, Idaho, Iowa, Kentucky, Massachusetts, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania and Washington – are probing ITT.

ITT denies it has done anything wrong and is contesting the pending charges.

But the company is also in precarious financial condition. ITT stock trades today at about $2.75 a share, down from $92.30 in July 2011. In October the U.S. Department of Education put delays and new restrictions on the delivery of student aid to ITT, after the Department concluded that ITT had failed to properly account for federal aid money since at least 2009 and failed to comply with prior Department orders to strengthen financial controls. The Department had already, in 2014, placed ITT on a probationary “heightened cash monitoring” status and required the company to post an $80 million letter of credit.

Yet ITT still has some 130 campuses, with more than 55,000 students, in 38 states.  Last year ITT received $664 million in taxpayer money from student grants and loans.

The Justice Department, and the U.S. Department of Education, haven’t explained why they did not join Lipscomb’s lawsuit. (Normally a whistleblower’s chances of winning go way higher when the government joins.) I hope it’s because these agencies are finally ready to take their own measures, with real sanctions, against ITT.

Given the lax financial practices, the serious charges of deception, and the trail of students with ruined lives, citizens must keep asking the U.S. Department of Education why it keeps sending our money, and our students, to ITT and other predatory schools.

This article also appears on Huffington Post.