ITT Educational Services, Inc. (NYSE: ESI) has been cut off federal funding for student education amid increased regulatory surveillance on for-profit education providers.
Some analysts on Wall Street see no survival hope for ITT Educational Services, Inc. (NYSE: ESI). At Piper Jaffray, they have trimmed their price estimate on the stock to a laughable $0. Shares of ESI fell more than 61% in the last session when news that the Department of Education will no longer allow students relying on federal aid to enroll at ESI.
Loss of massive source of revenue
The reason analysts at Piper Jaffray and others on Wall Street see no light at the end of the dark tunnel for ITT Educational Services is that they believe denying the company access to federal loans is a kin to putting it out of business.
Remember that federal funding accounted for 68% of all the revenue that ITT Educational Services, Inc. (NYSE: ESI) generated in 2015. In that year, the company received about $578 million from students who rely on federal education loans.
ESI has failed to meet its end of the bargain
Failures by ITT Educational Services, Inc. (NYSE: ESI) to meet certain regulatory requirements can be seen costing the company a major source of income. The for-profit provider has been accused of failing to address a number of concerns raised by its accreditors. The issues that accreditors have raise revolve around ITT Educational Services’ administrative capacity, financial stability and student achievement.
It is also said that students who take federal loans to study at ITT Educational Services end up defaulting on their loans because the degrees they obtain from the college often fail to give them the advantage they need to succeed in the highly-competitive job market.
Need for more cash reserve – ITT Educational Services, Inc. (NYSE: ESI)
While ITT Educational Services, Inc. (NYSE: ESI) could downsize and possibly survive without federal funding, there is a requirement that the DoE has issued for the company that could paralyze its operations sooner than later. The DoE has asked ESI to increase its cash reserve to cover potential reimbursement in case the college is forced to close any of its campuses.
ITT Educational Services is required to boost its cash reserve by about $150 million to $247.3 million in 30 days. That’s clearly a short notice for the company to raise the additional cash considering that ITT Educational Services is already in a cash crunch position.