Why ITT’s Collapse Actually Matters Most to HBCUs

First they came after for-profits…

First they came after for-profits…

ITT Technical Institute today announced that it will close its campuses nationwide, following years of pursuit from the federal Department of Education to cut down the scourge of for-profit higher education on the nation’s student loan debt outlook.

For years, the schools were able to rack up billions in profits, while graduates struggled to earn jobs and earn an income comparable to the costs of the school, and the loan debt they faced after completing their degrees.

Now, more than 8,000 ITT employees will be looking for work, and 35,000 students nationwide are searching for new higher ed options, and may be eligible for more than $500 million in loan forgiveness.

ITT officials didn’t go down without strong words for the DOE.

These unwarranted actions, taken without proving a single allegation, are a “lawless execution,” as noted by a recent editorial in The Wall Street Journal. We were not provided with a hearing or an appeal. Alternatives that we strongly believe would have better served students, employees, and taxpayers were rejected. The damage done to our students and employees, as well as to our shareholders and the American taxpayers, is irrevocable.

But it is the very last line of the ITT press release announcing its closure that should resonate with HBCU presidents, alumni and students at every campus throughout the country.

We believe the government’s action was inappropriate and unconstitutional, however, with the ITT Technical Institutes ceasing operations, it will now likely rest on other parties to understand these reprehensible actions and to take action to attempt to prevent this from happening again.”

And there is every reason to believe that this action will happen again, to some of the nation’s most financially and politically vulnerable schools, historically black colleges and universities.

‘Financially Risky Institutions’

In June, the Department of Education announced new regulations intended to disrupt massive cases of predatory recruitment and fraudulent marketing committed against millions of students in for-profit colleges and systems.

The rules followed the closure of Corinthians Colleges just two months prior, which Department officials said had misrepresented statistics about post-graduate job placements, and had burdened students with crushing student debt loans.

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The new rules, which everyone knew targeted for-profit institutions, laid specifically out how the federal government would serve as the national accrediting body for colleges and universities, using the threat of withholding student loan disbursements as the ultimate bargaining chip in guiding which schools survived, and which schools died.

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“It’s important to have common sense measures to protect students from bad practices,” said Education Undersecretary Ted Mitchell during a conference call with media members. “Together, these rules not only provide protections for borrowers, but encourage good behavior (from colleges) on the front end.”

Standards include:

Offers students debt forgiveness if they can prove institutional fraud, and forces schools to pay up to ten percent of Title IV funding received in prior year as student aid collateral if deemed to be in financial trouble

Will require watch-list schools to publicly disclose and warn all potential students about financial risk status

Clears the way for students, graduates to file class-action lawsuits against schools with questionable performance metrics

In 2013, the federal government awarded $3.4 billion in student aid disbursement to black colleges, an average of $33.6 million in tuition revenues for 102 accredited two and four-year historically black institutions.

Under the new rules, any of those schools determined to be ‘financially risky’ would have had to pay an average of $3.3 million just to qualify to receive student aid, and would have been required to tell all potential and current students about their financially unstable positions.

The DOE publishes a list of all institutions on the Department of Education financial ‘watch list,’ schools required to show a line of credit affirming their ability to operate or to make partial payment on outstanding student loan debt in the event of closure. How do schools wind up on the Heightened Cash Monitoring list?

Schools may be placed on HCM1 or HCM2 as a result of compliance issues including but not limited to accreditation issues, late or missing annual financial statements and/or audits, outstanding liabilities, denial of re-certifications, concern around the school’s administrative capabilities, concern around a schools’ financial responsibility, and possibly severe findings uncovered during a program review. Some schools are on this list due to preliminary findings made during a program review that is still open. Those findings could change when the program review is completed.

Historically black colleges listed on the most recent release include:

  • Alabama State University

  • Tuskegee University

  • Allen University

  • Arkansas Baptist College

  • Wilberforce University

  • Cheyney University

  • University of the Virgin Islands

Under new rules, these schools could at any point be under federal inquiry to demonstrate financial solvency, to pay out millions to prove their ability to cover losses associated with closing, or denied instant and complete access to the federal student loan revenue that keeps them open.

A History of Destruction

Coming after ‘financially risky schools’ wasn’t the first attempt by the Department of Education to reduce student loans going to schools and students who couldn’t get jobs. In 2011, the federal government changed eligibility standards for its Parent PLUS and Pell Grant programs.

When combined with reductions in federal grants and contracts, the total costs to HBCUs soared over $300 million in lost revenues between 2012 and 2014.

In 2013, former Department of Education Secretary Arne Duncan apologized to black college officials at their annual gathering in Washington D.C. for the lack of communication with institutions and families adversely affected by the changes, but addressed them only with the establishment of a hotline which allowed for students denied a loan to call a lending official and to appeal for reconsideration, or direction to another loan option.

Two years later, President Barack Obama proposed a plan to make community college free for all qualified students. That plan, which lives on in an adapted version being advanced by democratic presidential candidate Hillary Clinton, has been decried by some legislators as a dangerous proposal to historically black colleges, and a killer for private HBCUs in particular.

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“You’ve got to think about the consequences of things,” (Congressman James) Clyburn said. “[If] you start handing out two years of free college at public institutions are you ready for all the black, private HBCUs to close down? That’s what’s going to happen,” Clyburn said.

“Tougaloo College in Mississippi will be closed if you can go to Jackson State for free,” he said.

The Georgetown University Center for Education and the Workforce today released a speculative report on the impact of Clinton’s free community college proposal, and suggests that HBCUs could be among a group of open-access institutions which could benefit from a dramatic increase in student enrollees who otherwise would not have considered college — about 22 percent — while private school enrollment would decrease by about 7–15 percent.

The Georgetown Center would expect selective institutions to fill first. State flagships and the most selective publics would experience a surge in applicants, but could become even more selective by turning more prospective students away. The most selective colleges and universities would have their pick of the most qualified and highest achievement students from their expanded pool of applicants. Then, the mid-tier public universities would have their pick of the students who were well-qualified but couldn’t get into the flagships.

The result is that, in a cascading effect, less qualified candidates would get bumped down the chain into less-selective and open-access colleges. California’s three-tiered public university system has demonstrated this effect for years, and we would expect it to be mirrored in other states.

In either case, some large public HBCUs would benefit while other private black colleges would close under the impact of losing between 100–300 students almost instantly.

The Final Analysis

In the end, it is up to HBCU leaders, alumni and students to become more engaged in the rule making process and the culture of higher education, to be mindful of how policies enacted today will impact our schools tomorrow.

There is a reason that changes to student loans, accreditation and an entire segment of higher education has taken place in just five years — the country cannot bear its citizens being buried under more than $1 trillion in student loan debt and survive.

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If too much loan debt holds back too many people from buying cars and homes, starting businesses or sending children to college, then several industries will collapse. There will be no qualified workforce, the country will fall behind in innovation for national defense, commercial technology and medical research.

And poverty will rage out of control, specifically for black folks and other racial and ethnic minorities.

Two major for-profit colleges have closed in the last six months. If schools with hundreds of thousands of students and hundreds of millions in the bank can be taken out by the federal government before Labor Day, what can they do to historically black colleges and universities?