California to close for-profit colleges including many Everest College campuses

Nearly half of the for-profit colleges in California, including Everest College which opened a campus one block away from Milwaukee Area Technical College in the fall, are being kicked out of a state student aid program because of their default rates, The San Francisco Chronicle reported.

A little-known California law will bar nearly half of the for-profit college campuses in the state from offering students a coveted Cal Grant this year.

The law cracks down for the first time on schools with high student loan default rates, meaning graduates aren't paying back the money they owe even three years after leaving school. 25% of the schools being shiut down are owned by Corinthian College, Inc. which operates Everest College.

"It's a sign that the institution did not prepare them for a job so they could repay their loan," said Robert Shireman, who, as deputy undersecretary of education in the Obama administration, oversaw reforms in student lending.

Now, California is tying participation in the Cal Grant program to colleges' three-year student loan default rates.

No public campuses are affected by the law, SB70, because none has the toxic combination of a high percentage of borrowers where at least 1 in 4 defaults.

But 40 percent of California's "private Career colleges" do. Of 165 such campuses in the state, 67 have three-year default rates of at least 24.6 percent, the legal cutoff. 

They include some or all campuses of popular colleges many of which have campuses in Milwaukee: Everest, Carrington (formerly Western Career College), Kaplan, ITT Technical Institute, WyoTech, Heald and more.

"I'm mad. This pretty much ruined my credit," said Rigo Herrera, who owes $37,000 on a $27,000 federal loan he took out for a pre-nursing program at Everest College in Alhambra (Los Angeles County). He graduated from the 12-month program in 2008 but said he didn't learn enough to pass the license test and get a job.

"If they're getting punished, that makes me happy," said Herrera, who is in default.

The new law is supposed to punish such schools by depriving them of students who get Cal Grants.

"It's about getting their house in order, aiming them away from overaggressive promises they can't keep," Shireman said.

Students at for-profit colleges get about $4,000 to $10,000 in state aid on average, depending on the type of grant. When SB70 took effect this fall, about 4,900 students applying to for-profit colleges suddenly became ineligible or were offered a partial grant if they were already enrolled, according to the California Student Aid Commission.

The commission doesn't know what happened to most students at the affected schools but says at least 597 switched schools or withdrew.

Corinthian Colleges targeted

Corinthian Colleges owns more than one-fourth of the schools booted from the Cal Grant program.

All 14 of its Everest Colleges - including those in San Francisco, Hayward and San Jose - were barred. Depending on the campus, 30 to 45 percent of borrowers are in default. Not everyone at Everest applies for a Cal Grant, mainly because some programs last just 10 months. But about 320 students were eligible to receive a total of $756,000 last year.

Corinthian also owns nine Heald Colleges. Those in Fresno and Stockton had default rates high enough to cost them their Cal Grants. More than 1,300 students at the two campuses were eligible to receive $6.2 million last year.

Corinthian's WyoTech campuses in Fremont and Long Beach were also kicked out of Cal Grants. There, 122 students were eligible to receive $186,000 in state aid last year.

Company spokesman Kent Jenkins downplayed the Cal Grant loss, calling its impact muted.
"At the same time, we recognized that Corinthian's default prevention programs were not adequate," he said.

So the company "invested tens of millions of dollars" to reduce default rates, Jenkins said. It bought technology to keep track of graduates and hired staff to better communicate with students about their financial obligations.

Three campuses that lost access to the Cal Grants are owned by ITT Educational Services, in which University of California Regent Dick Blum is an investor. His firm, Blum Capital Partners, invested almost $239 million as of September.

For-profits aren't the only schools to lose access to Cal Grants. Nine nonprofit private colleges also lost them, including Patten University, a Christian school in Oakland.

For more on SB70 and schools affected by the law, see links.sfgate.com/ZLGZ and links.sfgate.com/ZLGY.

Nanette Asimov is a Chronicle staff writer of this story. nasimov@sfchronicle.com