Education department seeks to shut down ITT Educational’s accreditor

The Obama administration moved Wednesday to terminate the ability of a 104-year-old accreditor to act as one of the gatekeepers of the roughly $130 billion in federal funds that annually flows to schools.

The move could be a big blow to struggling Carmel-based for-profit educator ITT Educational Services Inc.

Staff at the U.S. Department of Education recommended that Education Secretary John B. King Jr. revoke his recognition of the Accrediting Council for Independent Colleges & Schools, or ACICS, one of 33 private organizations paid by colleges to help them maintain access to federal student aid. ACICS largely accredits for-profit schools.

Accreditors, which are mostly not-for-profit organizations, ensure that schools receiving taxpayer funds are up to snuff, and colleges can't receive federal student loans and grants unless they're accredited. The Education Department regularly reviews accreditors so that they're not giving colleges a free pass.

The move could cause havoc for many of the 243 colleges that rely on ACICS for its seal of approval. ITT Educational, one of the largest publicly traded for-profit colleges in the country, is mostly accredited by ACICS. Most of ITT's revenue comes from federal loan funding.

Wednesday's recommendation by department staff is just an initial step. A group that advises King on accreditation issues, the National Advisory Committee on Institutional Quality & Integrity, will also make its own recommendation after holding a hearing on the matter next week. Yet another Education Department official will make her own recommendation after taking the previous two into consideration. King has final authority, and his decision also can be appealed in court.

If ACICS ultimately loses its ability to accredit schools, colleges that rely on it will have 18 months to find a new accreditor. Those that don't either must forgo federal student aid funds or face a likely shutdown.

"We continue to monitor the ongoing developments with ACICS, however, we remain focused on the best interests of our students," ITT spokeswoman Nicole Elam said in an email to IBJ in response to the new development.

The move comes after years of criticism that both the Education Department and accreditors haven't effectively safeguarded the federal student aid system from schools that either deceived students or denied them an adequate return on their educations.

A spate of government investigations and lawsuits targeting for-profit colleges in recent years alleged that many career colleges duped students with false promises. What those schools have in common is the fact that their accreditors blessed their operations, allowing them to continue receiving taxpayer cash.

The Education Department, under President Barack Obama and former President George W. Bush, has tried to shake up accreditation to force a greater emphasis on student outcomes such as graduation rates and loan default rates, but accreditors and Congress have resisted.

But critics say that ACICS is different from other accreditors. The organization maintained its recognition of Corinthian Colleges Inc.—the for-profit chain that declared bankruptcy last year after an onslaught of federal and state lawsuits for allegedly defrauding students—up until the day it collapsed. It also accredited other schools that some attorneys general have accused of deceiving students.

A group of Democratic state prosecutors, Senator Elizabeth Warren (D-Mass.), and the Center for American Progress, a liberal policy group, have all urged the Education Department to terminate ACICS's ability to act as a gatekeeper for federal student aid funds. Last year, ACICS-overseen schools received nearly $4.8 billion in federal student loans and grants, according to the Education Department.

The department documented about 20 alleged failings by ACICS in its report on the accreditor. Those offenses include failing to prove that it has addressed “widespread placement rate falsification” by career schools. ACICS promised to begin verifying school-provided statistics on the jobs their students end up with in 2011, according to the report, but hasn’t followed through. The department is also concerned that ACICS failed at “discovering and acting upon questionable and fraudulent behavior at a significant number of larger institutions,” the report said.

“To not act at this particular point would be to sanction continued behavior of an accreditor that is not living up to its responsibilities,” a department official said Wednesday on a call with reporters.