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Shares of ITT Educational Services Crater Amid For-Profit College Crackdown

This is the campus of ITT Technical Institute in Anaheim, CaThis is the campus of ITT Technical Institute in Anaheim, Ca
ITT Technical Institute in Anaheim, Calif. Bloomberg Bloomberg via Getty Images

Television personality John Oliver once said in an HBO segment that students would be better off attending the fictional school Hogwarts than ITT Technical Institute because just 23% graduated from its engineering program.

Now, nearly two years later, the for-profit college is being cut off from federal funding that accounted for 68% of its revenue—about $578 million in 2015—marking a possibly fatal blow for its struggling management company, ITT Educational Services (ESI), Wall Street analysts say.

“To protect prospective students and taxpayers, we’re no longer allowing ITT to enroll new students with federal aid,” the U.S. Under Secretary of Education, Ted Mitchell, wrote in a blog for the Department of Education Thursday.

Officials also handed down a series of other restrictions, noting that ITT had failed to address the concerns of its accreditors, which included its financial stability, administrative capacity, and student achievement.

The stock dropped more than 60% on the news.

See also: Bill Clinton’s Pay Exceeded $17.5 Million While Working At A For-Profit Education Company

The company can continue to collect federal aid from current students, allowing ITT to chug along at least for a little while longer. But what could end the company in just a matter of weeks is the DoE’s requirement that ITT increase its cash reserves to $247.3 million—up from $94.4 million—within 30 days.

“We see little chance the company can survive those requirements,” wrote Piper Jaffray analyst Peter Appert, who moved the stock’s price target down to $0. The DoE’s decision has “effectively put the company out of business.”

ITT Educational Services was not immediately available for comment. Fortune will update the story should the company respond.


The move comes as the Obama administration has increasingly cracked down on for-profit colleges after officials and the public have highlighted the sector’s alleged deceptive marketing practices and habit of targeting low-income students. That led Corinthian Colleges to close last year, and another, Brown Mackie College, to whittle itself down to just four locations from 28.

ITT Educational Services has long been under government scrutiny. The Consumer Financial Protection Bureau sued ITT in 2014, saying it had exploited consumers by pointing them toward high-cost student loans. The Securities and Exchange Commission also announced Fraud chargers in May 2015, accusing ITT’s management of concealing poor financial performance from investors. And that’s just to name a few.

See also: Defrauded Students Entitled to Debt Forgiveness

Under the new government restrictions, recently enrolled ITT students cannot start classes at the institute in the fall semester, which begins Sept. 12, using federal loans.

The Department of Education has also written in requirements that suggest it is preparing the company for bankruptcy or liquidation. For example, ITT has been required to develop “teach-out” agreements with other colleges, so that students can complete their studies elsewhere should the institution cease operations.

In addition, ITT has been prohibited from giving its executives raises, or paying bonuses, retention, or severance packages without government approval.

Fellow for-profit college companies DeVry Education Group (DV) and Apollo Education Group (APOL) dipped slightly in morning trading Friday. Shares of Strayer (STRA) moved up by 0.5%.