Amid mounting concerns, ITT-run charter school shut down

In the second week of his senior year at Early Career Academy, Anthony Jones was told to find a new school immediately.

He had transferred the trimester before to the public charter school run by ITT Technical Institute, in the hopes that he could enter the Army after high school graduation with an associate degree already in hand.

But in August, Indiana charter officials moved quickly to shut down Early Career Academy within 30 days. They said the school, open for just one year on Indianapolis' northwest side, was widely dysfunctional and operating in violation of state law.

Anthony's mother, Katrice Fisher, scrambled to get him back into his old private school.

“I’m just one of those parents who’s shocked,” said Fisher, 39. “You’re doing this to these kids now, and it takes a toll on them.”

Fisher worries that Anthony, 17, could be asked to repeat his junior or senior years because of his brief stint at Early Career Academy. She enrolled him at the charter school because she wanted more for Anthony's education. "But it didn't happen that way."

Fifteen years into Indiana’s charter movement, Early Career Academy is a rare failure in a city lauded across the nation for its charter efforts. In the name of innovation, state charter officials green-lighted a school rife with red flags, letting public dollars and students’ educations be entrusted to an institution whose troubles — academic, financial and reputational — were well publicized.

Those troubles have put ITT Tech’s college accreditation under question, and the federal government deemed the business at such high risk of failing that it imposed strict sanctions “to protect prospective students and taxpayers.” Carmel-based parent company ITT Educational Services Inc., analysts say, now sits on the precipice of bankruptcy and has closed its doors to new postsecondary students.

And, ultimately, many say those troubles sank Early Career Academy from the start.

"Many charters are a work in progress," ITT spokeswoman Nicole Elam wrote in an email. "Some fail. Some succeed. ITT/ESI and the local board did not make it work here. We should all accept responsibility."

At a time when Indianapolis leaders are leaning even more heavily on independently run, tuition-free public charters for answers to education woes, Early Career Academy writes a cautionary tale for oversight agencies and school operators.

Its closure raises some of the greatest fears of critics of the charter sector: Were the people behind Early Career Academy qualified to run a school? Were they in it just for the money? Were they harming — not helping — students’ education?

Early Career Academy intended to serve "the educational have-nots" who dream of entering the middle class.

But when the Indiana Charter School Board approved the charter in 2013, it was already aware that Early Career Academy was struggling with governance and finances. It took a chance on the school anyway, but the risk backfired.

Early Career Academy went through three executive directors and two almost complete turnovers of its school board in three years. It never reached one-fifth of its planned enrollment and was projected to run hundreds of thousands of dollars in debt. It let its nonprofit status expire with the Internal Revenue Service, ignoring a state requirement.

The problems became so egregious that the state charter agency decided it would be better to pull students out partway into the school year rather than let them finish it.

ITT Tech just provided its first update on how it's trying to survive

ITT troubles

Early Career Academy was hailed as an innovative school choice option, advertising free early college to high school juniors and seniors. Students would graduate with a diploma and an associate degree, which struck a chord in a state trying to champion workforce-ready education.

But it came with a catch: The degrees came through ITT Tech, whose credits are unlikely to be accepted by other colleges.

For-profit groups such as ITT are not allowed to open charter schools in Indiana. But, as ITT did, they can help form a nonprofit board. And that nonprofit board can hire a for-profit management company, such as ITT, to run a charter school as a contractor.

ITT attempted to open Early Career Academy locations across the nation. Experts said ITT likely saw charters as a side venture that would be unencumbered by scrutiny heating up over its higher education business.

When the Indiana Charter School Board approved Early Career Academy's charter in May 2013, ITT had already faced criticism over the quality of its education.

Before the school opened in August 2015, ITT was named in lawsuits in several states and on the federal level from the Consumer Financial Protection Bureau. It also faced fraud charges from the Securities and Exchange Commission.

Investigations focused on whether enough students were graduating from ITT Tech, with degrees that landed them jobs that allowed them to pay off their steep college loans. ITT also has been questioned on whether it was truthful in the numbers it cited for enrollment, grades, attendance and job placement rates.

In the short time that Early Career Academy was open, from August 2015 to August 2016, ITT Tech’s accreditation was put on the line. The federal government heightened its oversight of ITT.

ITT Tech faces sanctions that could put it out of business within weeks

Shortly after Early Career Academy’s closure, the dominoes fell. The U.S. Department of Education ratcheted up sanctions, banning ITT Tech from accepting new students who rely on federal financial aid dollars. That effectively shut down ITT Tech’s enrollment of new students and put the company in danger of going out of business, experts said, since it depends on federal financial aid funds as its largest source of revenue.

With the charter school project, ITT might have been looking to diversify its revenue streams by drawing instead from K-12 dollars, said Kevin Kinser, department head of education policy studies at Penn State University.

Early Career Academy would pay 12 percent of its state tuition funding to ITT, according to its charter application. The school also would pay fees for student technology, ITT curriculum and facilities. It would reimburse ITT for employee wages, office supplies, textbooks and other expenses.

Based on its state allocation for this year, if Early Career Academy had maxed out its capacity of 250 students, it could have tapped into roughly $1.5 million in state funding.

“When the question arises over academic quality and profit, which side wins?” asked Ben Miller, senior director for postsecondary education for the Center for American Progress.

“What is the end goal here?” he went on. “And if it’s just about revenue, this may not be the best fit for the students.”

Even if the charter school had worked, Miller mused, how long would ITT be around to run it?

Early concerns

From the start, state charter officials had concerns about Early Career Academy, which were highlighted in a 2014 IndyStar investigation.

The charter wasn’t officially granted to ITT Tech; it was given to the school board essentially created by and closely tied to ITT.

Early Career Academy was supposed to be independent. The school board should be able to fire ITT as its service provider if needed.

But without ITT, Early Career Academy likely wouldn’t survive — or have existed in the first place.

On Early Career Academy's founding board, two members resigned after being asked about potential conflicts of interest. One was a consultant on ITT Tech’s charter school initiative. The other sold the curriculum used by ITT and Early Career Academy.

The remaining board member was a retired ITT executive and former chair of the agency that accredits ITT Tech.

Would ITT have too much power, state officials wondered, over a public charter school?

State charter officials also wanted Early Career Academy to prove it could be financially sustainable without ITT.

Early Career Academy operates in an upstairs corner of ITT’s spartan building on the northwest side. ITT provided $150,000 for the school’s startup costs, according to the charter application, and proposed giving the school nearly $500,000 in in-kind services — and more each year as the school was projected to grow.

ITT also promised to cover the school’s possible deficits.

ITT Tech's new charter school to offer free AA degree — with a catch

Failing to meet expectations

Still, the state agency gave Early Career Academy a shot, even as problems from the outset delayed its opening by two years.

But Early Career Academy never worked out as planned.

In its first year, the school enrolled just 14 students, the state charter agency said, and ended the year with nine.

This year, the school enrolled 19.

According to a budget draft, the school was projected this year to run at a loss of about $430,000.

The lure of an ITT degree was meant to entice students. But the controversies around the for-profit college, ITT officials acknowledge, may have scared them away.

“…That negative press," Elam wrote in an email, "may have had a larger than anticipated impact on demand.”

She said ITT understood the decision to close the school, given the low enrollment.

But that wasn’t the only reason.

In July, all but one of Early Career Academy’s board members resigned — the second mass departure of leadership.

The only one left, Eric Kilbride, said he never received a good explanation for why they left.

The state charter agency received an anonymous call reporting concerns over the relationship between the Early Career Academy’s board and ITT. Interviews with department board members revealed more concerns about ITT, said Indiana Charter School Board Executive Director James Betley. But he declined to elaborate on exactly what those concerns entailed.

In a letter to Early Career Academy, the state charter agency brought up questions about board turnover, potential conflicts of interest and independence from ITT.

On the current board, Kilbride and Drew Callard reported no ties to ITT. Martin Van Buren lists on his LinkedIn page as having been a senior vice president and chief information officer for ITT.

After such turmoil, the state charter agency asked, could a new board effectively run the school? Much less hold ITT accountable?

Lacking required status

For most of the time it was open, Early Career Academy was operating in violation of state law, according to the state charter agency.

The school didn’t file tax returns for three years, Betley said, leading the IRS to automatically revoke its status as a 501(c)(3) nonprofit. Indiana law requires charter schools to have the federal nonprofit status.

Board members past and present said they didn’t have any warning until it was too late. Later, the board told state charter officials that it didn’t think it needed to file any tax returns, since the school wasn’t fully operational for most of those three years.

Preserving the school’s tax-exempt status was “a pretty simple requirement,” Betley said, which the school could have completed by filling out a simple electronic form.

The lapse in paperwork is easily correctable. On the same day the school’s charter was revoked, an ITT official said forms were sent overnight to the IRS to reinstate Early Career Academy’s tax-exempt status.

That status can be restored retroactively to cover the lapse, Betley said: “So there’s a legal gray area here about whether or not that cures that they operated for a year without being tax-exempt.”

Still, Early Career Academy officials said they have been advised to secure an attorney in case the state takes legal action against them. They worry that the state Department of Education may ask them to repay the public funds they received over that period — $73,734 in state tuition funds.

“There seemed to be some blame thrown around,” Betley said. “ITT was blaming the board. The board was saying they had no idea. Given that all the notices were sent to ITT, I tend to think that the board wasn’t aware, even though technically they were responsible.

“I don’t know what happened,” he went on. “It’s sort of irrelevant. But it does demonstrate some dysfunction” between the board and ITT.

Weighing the risks

Across the country, ITT has received mixed results with its charter school endeavor.

This year, an Early Career Academy opened in Tempe, Ariz.

In Jacksonville, Fla., and Houston, Early Career Academy applications didn’t pass muster — in part because of hesitations over allowing ITT to operate a charter school.

In Tampa, Fla., problems derailed the launch of Early Career Academy, and it never opened.

The most success Early Career Academy has seen is in Troy, Mich. But, as in Indianapolis, the school struggles with enrollment, said Robert Kimball, deputy director of charter schools for Grand Valley State University.

Kimball gave Early Career Academy a 50/50 chance of surviving. But he said charter officials felt an obligation to test out Early Career Academy’s innovative model.

Charters carry inherent risks, because they aim to educate differently from what's traditionally been done, said Robin Lake, director of the Center on Reinventing Public Education.

“There’s really no way to get innovation without some things not working,” she said. “There’s no way you could eliminate all risk.”

IPS takes a risk in reshaping a poor performing school

But nationwide, she said, standards have become stronger over the years for charter schools to launch and remain open.

Most of the Indiana Charter School Board staff and board members who initially approved Early Career Academy in 2013 are gone. Previous executive directors declined to comment on the school, and Betley said he couldn't speak to the decision to charter Early Career Academy.

Of more than 80 charter schools in Indiana, few shut down each year. Nationwide, charter advocacy groups say, less than 4 percent of charter schools close each year.

Closing a school is a big deal, but charter advocates say it's also a strength of the sector because it holds accountable poorly run or poorly performing schools.

“It’s a really challenging decision," said William Haft, vice president of authorizer development for the National Association of Charter School Authorizers, "because you do want to give a school every chance to succeed.”

But Chris Lubienski, professor of education policy at Indiana University, said those risks come at the expense of students — like the 19 who were attending Early Career Academy.

“The idea is, let a thousand flowers bloom. Some of them are going to be stinkers,” he said. “There’s this idea of creative disruption, that through competition or other forms of accountability, the bad schools would close. But you want to prevent that disruption when it comes to kids. Now you have a whole group of kids who are scrambling for school places.”

For parents such as Katrice Fisher, Early Career Academy’s demise was sudden and unexpected, leaving her searching for answers.

“What was the real point of even opening the school if it wasn’t even going to be legit enough to transfer the credits?” Fisher asked. “How does it hold water?”

She hopes the interruption of Anthony's school year doesn't derail his graduation or career plans, but it weighs on her.

“I’m just praying that he’s OK,” Fisher said.

Within a week of the closure decision, most of Early Career Academy’s students had found new schools. Some, the school director reported, felt heartbroken that there weren’t similar types of schools available.

Some were close to their high school diplomas, so they could complete the credits in independent study. School officials said they hoped those students might come back later to ITT to finish their associate degrees. But that opportunity, too, may disappear.

Call IndyStar reporter Stephanie Wang at (317) 444-6184. Follow her on Twitter: @stephaniewang.

ITT Tech's collapse could help former students wipe out their loans