U.S. Government Cuts Off New Funding for ITT Technical Institute

WASHINGTON—The Obama administration has ordered the for-profit education chain ITT Technical Institute to stop enrolling new students that use federal loans and grants, amid allegations of deceptive marketing.

The move deals a major blow to the company's finances, as federal student grants and loans are the main source of its revenue.

The stock of parent ITT Educational Services Inc. plunged by about a third after the announcement to $1.40 a share on the New York Stock Exchange.

The Education Department said it would also step up its scrutiny of ITT's finances, part of a broad federal crackdown on abuses in the for-profit school industry.

An ITT spokeswoman couldn't immediately be reached for comment.

The move comes nearly two months after the department ordered ITT"s parent to boost its cash reserves, pointing to the risk that the chain of for-profit colleges could close because of state and federal investigations.

The Education Department said on Thursday that ITT's accreditor, the Accrediting Council for Independent Colleges and Schools, has determined the company "is not in compliance and is unlikely to become in compliance with accreditation criteria."

ITT, which has 43,000 students nationwide, is under investigation by 19 state attorneys general and at least two federal agencies over allegations of shady marketing and recruiting.

"Our responsibility is first and foremost to protect students and taxpayers," Education Secretary John B. King Jr. said on Thursday. "Looking at all of the risk factors, it's clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds."

Write to Josh Mitchell at [e-mail]

(END) Dow Jones Newswires

August 25, 2016 15:35 ET (19:35 GMT)

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