Corporate Greed Education Sam Pizzigati

Should We Let Scam-Artists ‘Educate’ Our Young People?

Former ITT Technical Institute building in Springfield, Virginia, taken in September, 2016 after their closing. Ser Amantio di Nicolao, CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0, via Wikimedia Commons

By Sam Pizzigati / CounterPunch

Just over 200,000 young American men and women — all students defrauded by a now defunct for-profit trade school — received some welcome news earlier this week on their student loans. The Biden administration has just erased the $3.9 billion these students owe the U.S. Department of Education.

A happy ending to a sordid story? Not quite. The villain in this tale, the ITT Technical Institute trade-school chain, spent years systematically enriching its top execs and investors at student expense. The CEO who orchestrated that fleecing remains at large and a millionaire many times over.

The students that this CEO’s operation fleeced now do have no more student loans to worry about. The big worry they do have left: their futures.

Our key to brighter futures, here in the United States, has always been education. But over recent decades we’ve let education become a corporate playground where the already rich  race around making themselves ever richer. This shift, we need to remind ourselves, represents a dramatic break with our not-so-distant educational past.

Back in the mid-20th century, no one looked at schools and envisioned lush profit centers. We did, to be sure, have private schools and colleges in that era. But these private institutions never generated grand fortunes for those who ran them. Private elementary and secondary schools either operated as exclusive havens for the scions of already affluent families or, more typically, as academies with a particular religious bent. At the collegiate level, a similar story.

The top brass at all these private institutions seldom earned over upper middle-class paychecks. No one grew fabulously rich off of educating young people. But all that has changed. Helping lead the charge for that change: a network of postsecondary institutions that feast off of taxpayer dollars.

Top execs at for-profit trade schools have done a major chunk of that feasting. Between 2003 and 2010 alone, these CEOs pocketed over $2 billion from their company stock sales. The CEO of ITT Tech, Kevin Modany, shared in those good times. In 2009, the Indiana-based Modany pulled down $7.6 million, over 22 times the then-$377,144 annual pay of the president of Indiana University.

Modany took home even more, $8.8 million, in 2012. Over the next three years, he added on another $7.6-million to his take-home haul. And what happened in the fourth year? In 2016, ITT Tech shut down and filed for bankruptcy.

The shutdown left in the lurch the chain’s 8,000 employees and 40,000 students then enrolled on 130 campuses across 38 states. These students, the Indianapolis Star reported at the time, found themselves “carrying piles of student loans” and course credits “difficult to transfer.”

Students already “graduated” from ITT Tech sat in similar straits. Those young people who had left their job placement to ITT Tech often found themselves “placed” in low-paying positions that didn’t require professional training. Graduates who tried to do their own job-hunting regularly suffered through humiliating job interviews. Prospective employers simply refused to take their ITT course credits seriously.

For good reason. ITT Tech spent more on marketing than educating. A U.S. Senate investigation would later put the comparative outlays at $2,839 per student for instruction and $3,156 per student on marketing. The school’s simple marketing mantra, according to the ad agency creative director who handled the ITT Tech account: “Get Asses in Classes.”

ITT Tech marketeers aggressively targeted their pitches at young military veterans — to maximize the federal aid the college could collect — and did their best to conceal the true cost of an ITT Tech education. In its prime, the chain was charging $77,000 for an average bachelor’s degree, about $640 per credit. Most ITT Tech students went for two-year degrees. Their per-credit cost, Barron’s would observe, tripled the going per-credit rate at the nation’s most expensive public community colleges.

The eventual overall price-tag for an ITT Tech education could rise far higher once student loan repayments kicked in. One ITT Tech Seattle campus student, a Gizmodo report noted after the school’s shutdown, had earlier taken out “$65,000 in federal and $7,000 in private loans to pay tuition.” Just four years later, after compounding interest, the student owed over $200,000.

By that time, regulators had caught up with ITT Tech CEO Modany’s corporate scamming. In 2012, a Senate report on for-profit trade schools showcased ITT Tech’s ongoing abuse of students and taxpayers. The federal Securities and Exchange Commission three years later charged that Modany and his chief financial officer had “engaged in a fraudulent scheme and course of business.”

Modany’s response to the growing critiques? He railed against “socialists” and “union” support for the “precious little millennial egos” getting so much attention for “telling lies” about him. But the railing wouldn’t save Modany. In 2016, the U.S. Department of Education finally pulled the plug. DOE informed Modany that August that students would no longer be able to use federal loans to attend his educational institution.

That announcement immediately torpedoed ITT’s financial model. The chain’s funding came overwhelmingly — 70 percent in 2015 — from federal student loans. Without that funding, all the marketing deception in the world couldn’t keep Modany’s scam alive. Just a few days after the Education Department’s ruling, amid widespread student and staff confusion, ITT Tech shut its doors.

Earlier this year, in an exhaustive report entitled Dreams Destroyed: How ITT Technical Institute Defrauded a Generation of Students, the Project on Predatory Student Lending at the Harvard Law School Legal Services Center detailed the entire sordid history of the ITT Tech fraud and helpfully highlighted a series of recommendations to prevent any sort of future repeat.

The U.S Department of Education, the Harvard Law study suggests, “should sharply limit the ability of participating institutions to operate multiple locations and apply greater scrutiny to those that do.” The Department should also “derecognize” any accrediting agency that approves “an institution that causes large-scale harm to students and financial injury to the federal student aid programs.”

These and other Harvard law suggestions make eminent sense. But all these reforms leave in place the underlying incentive to become fabulously rich — off of federal tax dollars — that lit the profiteering fire under ITT Tech chief Modany.

We can, fortunately, eliminate that incentive with one simple move. We could limit executive compensation at any entity that takes in federal tax dollars to no more than a modest multiple — say 10 or 25 times — of the pay of that entity’s most typical employee.

Legislation now pending in the U.S. House of Representatives, the Patriotic Corporations Act, would take a step in this direction by granting preferential treatment in federal contracting to firms with pay ratios of 100 to 1 or less. The Congressional Progressive Caucus, note Institute for Policy Studies analysts Sarah Anderson and Brian Wakamo, has called on the Biden administration to give — via executive action — corporations with narrow ratios this same preferential contracting treatment.

And what will happen if we don’t move in this direction? Steel yourself for more Kevin Modanys in our future.

Sam Pizzigati
Sam Pizzigati

Sam Pizzigati writes on inequality for the Institute for Policy Studies. His latest book: The Case for a Maximum Wage (Polity). Among his other books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970  (Seven Stories Press). 

10 comments

  1. Nicely done Mr. Pizzigati. “The patriotic corporations act”. Hilariously named on its face. Severe penalties should have been enacted long ago against the traitorous corporations who have offshored most of America’s good jobs, simply for profit, while offshoring their financials to avoid paying their fair share. All of those executives should be deported. Maybe hang a few of the more egregious offenders; Jack Walsh comes to mind. They hollowed out our country and left a rotting husk for most of us so their greed could be assuaged. And we the middle class, were negligent in our duties as good citizens, we were spoiled and lazy, and worst of all, complicit by our inaction. Now, in the midst of our tarnished declining empire we have to beg China to manufacture medical supplies so we can attempt to carry on our mismanagement of the current epidemic. I’ll stop now, I’m rambling and feel nauseous contemplating this topic. Good luck, be well.

  2. Thanks for writing this up, Sam P. As with many other cases, I don’t think most Americans are aware of just how much a scam was pulled and supported with their tax dollars.
    I too like the suggestion of a “Patriotic Corporations Act”. If we have to tolerate corporations it’s high time that laws gradually restore some semblance of balance between their powers and public responsibility.

    And while I don’t necessarily believe in a Hell as conceived in Christian dogma, I do hope someone is keeping a list of all the Kevin Modany – types whose greed and abuses have cost so many. Just in case the guillotines come back into fashion.

  3. evidence that pizzagtti lies is overwhelming—americans despise education; they prefer credentials and credibility to truth. there is no disagreement here whether liberal, conservative Marxist etc

  4. Should we let government schools educate young people?
    People must learn to be more critical of government with its welfare and war which are running up debts that cannot be paid.

    1. Social welfare programs were solvent, so long as the wealthy paid their fair share. Once they got their men in Ronald Reagan and later Bill Clinton, they waged a successful tax boycott. Social programs are successful, cost-effective, socially beneficial, and solvent when funded properly through individual and corporate taxes.

      1. verifiably false—many “social programs ” have made conditions worse, others not

      2. Social welfare programs were successful as long as long as the wealthy paid their full share for welfare and war. Sounds like circular reasoning. But beyond that, the wealthy pay more than their share.

        Why should manmade wealth be taxed at all when we can tax the natural wealth which was given to us by nature. But no, we are possessed by profit envy. So instead of sharing what belongs to us, we want to take what belongs to others.

  5. “What belongs to others.” What a joke. You should say, “What was stolen from the poor.”

  6. Ernest & Giligan’s Island, you libertarian knuckleheads really should learn the facts about the New Deal and Great Society. You’re just spouting the same old Republican/Democrat mainstream ideological tax cut horseshit.

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