NEW YORK (MainStreet) — Rohit Chopra's parting shot as the Consumer Financial Protection Bureau's student loan ombudsman was to write letters to search engine vendors--Bing, Google and Yahoo--with a warning that their flag ship products were being used to sell fraudulent products to unsuspecting people with student loans.
A little more than a week later, he's still writing letters, but this time at as senior fellow at the Washington, D.C.-based Center for American Progress about ITT Educational Services (ESI), the parent company of ITT Tech, a for-profit college chain that is under siege by state and Federal regulators. His first one wasn’t sent to a student organization, but to ITT shareholders.
Chopra leveraged the novel idea that if ITT students do well, so will its shareholders.
Both of them are the pits. According to USA Today's 2013 list of Red Flag schools whose student loan default rate was higher than its graduation rate, 45 of the 265 that made the list were ITT schools. ITT credits typically don't transfer to other schools, and it's hard to find former students who are satisfied with their ITT experience. The school has been compared to the now-defunct Corinthian Colleges.
ITT's shares have rallied from a May low of $1.93 to $4.29 at Friday's close, but well off the 52-week high of $17.17. The for-profit chain enrolls about 70,000 students at online and brick-and-mortar locations in 39 states. Since its 2011 peak, market capitalization has declined more than 90%.
It's not clear who initiated the letter exchange, but in addressing shareholders whose identities were redacted, Chopra began, "Thank you for your interest in discussing your investment in ITT Educational Services, Inc."
He noted that ITT was heading down the same slippery slope as Corinthian Colleges and put it on investors to “provide more vigorous oversight over management and the board” of directors.
But that may be too little, too late. "As it stands now, the company is not well situated for survival," Chopra wrote. "Because ITT failed certain financial responsibility requirements and operates under provisional certification, the U.S. Department of Education can revoke eligibility for federal student aid with minimal notice."
He added, "The states of California and New York took action (that) sought to limit ITT’s access to GI Bill benefits for veterans. As noted in the company’s recent Form 10-K, other states could also follow suit." Simply put, the loss of public money would put the Carmel, Ind.-based chain out of business.
Since 2014, ITT has been legally taken to task by the Securities and Exchange Commission and the CFPB, which last year sued ITT for allegedly pressuring students into taking out high interest, high risk loans under PEAKS, its private loan program. The CFPB hung a similar rap on Corinthian's Genesis loan program, which it called a predatory lending scheme. The Department of Education (ED) forgave some $480 million in these loans.
Nicole Elam, ITT's vice president of government relations and external affairs slammed Chopra's view of ITT, which is common in higher ed, as being typical of Washington's bias against the for-profit college industry.
"The fact that he would write such a letter to investors days after leaving the [CFPB] trumpeting mere allegations against the company demonstrates a personal bias against our institutions and an unwillingness to allow for due process to work -- the cornerstone of the U.S. legal system," Elam said in a press release. She stopped short of threatening a lawsuit.
But it’s ED that will likely decide ITT's fate. Last year, ED placed the company under HCM--Heightened Cash Monitoring, an indication that ED is keeping a closer watch on how the school spends federal money and perhaps the last act before that money is withheld.
Chopra has followed a well-beaten path, where public officials leave government for the private sector or foundations. But leaving the CFPB for CAP isn’t quite like going from the Defense Department to the aerospace industry or from the National Institutes of Health to Big Pharma. A lingering question is what can Chopra do at CAP that he couldn’t at the CFPB. CFPB spokesperson Moira Vahey referred that question to the Center for American Progress, which has not yet responded to TheStreet.