ITT Educational Scrutiny From U.S. Regulators Joined by Lenders

Career College Central Summary:

  • For-profit college ITT Educational Services Inc. (ESI:US), already under pressure from the U.S. Education Department, is facing stricter terms from lenders that could put its operations at risk.
  • Last week, ITT Educational disclosed an agreement with creditors that would push its loans into default should the government delay access to student-aid funds, the lifeblood of for-profit colleges, by more than five days. On Aug. 4, the company’s market value shrank by almost half and ITT said Chief Executive Officer Kevin Modany will step down in February.
  • ITT Educational’s woes come in the wake of the collapse of Corinthian Colleges Inc., which has 72,000 students and $1.4 billion in annual federal student aid. While Congressional leaders call for greater oversight of education companies, the impact of Corinthian’s demise is spreading industrywide as lenders impose more stringent conditions and in some cases higher loan rates.
  • “Sometimes it can be a vicious circle,” said Joseph D’Angelo, a partner at Carl Marks Advisors in New York who consults on education borrowing and lending. “Certain abrupt actions by the Department of Education can make what looks like a manageable situation look much more dire.”
  • A delay of more than five days wouldn’t automatically lead to an ineligibility of Title IV financial-aid funds for ITT Educational, said Nicole Elam, a spokeswoman for the company, in an e-mail.

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BLOOMBERG BUSINESSWEEK

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