Monday, December 8, 2014

Debt-Collecting Agency Will Buy For-Profit Corinthian College Chain

By Diane Ravitch 

One of the nation’s largest for-profit providers of college degrees has been sold, according to Inside Higher Ed, to a debt-collection agency.

The ECMC Group, a nonprofit organization that runs one of the largest student-loan guaranty agencies, announced Thursday that it will purchase 56 campuses from Corinthian Colleges, a crumbling, controversial for-profit chain.

ECMC will create a nonprofit subsidiary, called the Zenith Education Group, to run the campuses, which enroll more than 39,000 students. The sale price is $24 million, according to a corporate filing from Corinthian. After having absorbed more than half of Corinthian’s enrollment and assets, Zenith will operate the nation’s largest chain of nonprofit career-oriented campuses.

Corinthian’s Everest, Heald and Wyotech chains include 107 campuses, which in July enrolled 72,000 students and employed 12,000. The company has been attempting to sell 85 U.S. and 10 Canadian locations, while gradually closing 12 campuses.

The sale announced Thursday includes 53 Everest College and three WyoTech campuses. 

Corinthian had been teetering even before a 21-day freeze on federal aid payments pushed it over the edge earlier this year. The company, which is one of the sector’s largest, had been hit hard by slumping enrollment and revenue, as well as investigations, lawsuits and bad publicity.

The for-profit higher education industry has long been under investigation for defrauding students, but it survives nonetheless because it hires the top lobbyists in both parties to protect it against regulation. Senator Tom Harkin of Iowa (who just retired) issued a scathing report on the industry in 2012 that unfortunately went nowhere. This story appeared in the New York Times:

“According to the [Harkin] report, which was posted online in advance, taxpayers spent $32 billion in the most recent year on companies that operate for-profit colleges, but the majority of students they enroll leave without a degree, half of those within four months.

“In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Mr. Harkin, an Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee, said in a statement on Sunday. “These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions….

Over the last 15 years, enrollment and profits have skyrocketed in the industry. Until the 1990s, the sector was made up of small independent schools offering training in fields like air-conditioning repair and cosmetology. But from 1998 to 2008, enrollment more than tripled, to about 2.4 million students. Three-quarters are at colleges owned by huge publicly traded companies — and, more recently, private equity firms — offering a wide variety of programs.
Enrolling students, and getting their federal financial aid, is the heart of the business, and in 2010, the report found, the colleges studied had a total of 32,496 recruiters, compared with 3,512 career-services staff members.

Among the 30 companies, an average of 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits and 17.7 percent to instruction.

Their chief executive officers were paid an average of $7.3 million, although Robert S. Silberman, the chief executive of Strayer Education, made $41 million in 2009, including stock options.

With the Department of Education seeking new regulations to ensure that for-profit programs provide training for “gainful employment,” the companies examined spent $8 million on lobbying in 2010, and another $8 million in the first nine months of 2011.

The bulk of the for-profit colleges’ revenue, more than 80 percent in most cases, comes from taxpayers. The report found that many for-profit colleges are working desperately to find new strategies to comply with the federal regulation that at least 10 percent of revenue must come from sources other than the Department of Education. Because veterans’ benefits count toward that 10 percent even though they come from the federal government, aggressive recruiting of students from the military has become the norm.

The amount of available federal student aid is large and growing. The Apollo Group, which operates the University of Phoenix, the largest for-profit college, got $1.2 billion in Pell grants in 2010-11, up from $24 million a decade earlier. Apollo got $210 million more in benefits under the Post-9/11 G.I. Bill. And yet two-thirds of Apollo’s associate-degree students leave before earning their degree….

On average, the Harkin report found, associate-degree and certificate programs at for-profit colleges cost about four times as much as those at community colleges and public universities.
And tuition decisions seem to be driven more by profit-seeking than instructional costs. An internal memo from the finance director of a Kaplan nursing program in Sacramento, for example, recommended an 8 percent increase in fees, saying that “with the new pricing, we can lose two students and still make the same profit.” Similarly, the chief financial officer at National American University wrote in an e-mail to executives that the university had not met its profit expectation for the summer quarter, so “as a result” it would need a midyear tuition increase.

Advocates for the for-profit higher education industry complained that their institutions were under attack solely for partisan reasons.
Given this background, one might expect that the U.S. Department of Education would vigorously oppose these for-profit institutions that cost so much and deliver so little to students. 

But, no, when Corinthian Colleges teetered close to bankruptcy, the U.S. DOE gave it a bridge loan to help the chain stay in business until a buyer for the distressed corporation emerged. More than half of the Corinthian chain of for-profitcolleges has been purchased at a bargain basement price of $24 million by a debt-collection agency called ECMC (the Educational Credit Management Corporation). Corinthian was once valued at $3.4 billion. The negotiations were handled by Undersecretary of Education Ted Mitchell, who previously was CEO of NewSchools Venture Fund (which funds charter schools, charter chains, and education technology startups). Consumer advocates were upset that ECMC was taking over a chain of colleges, in light of the fact that it has no experience running educational institutions:
“A chorus of consumer and student advocacy groups said they had serious concerns about the sale. They expressed concern that the campuses would be run by an organization that has not previously managed academic institutions.

“ECMC has no experience running a college, let alone one of this scale, and is instead known for ruthless and abusive student loan operations,” the Institute for College Access and Success, known as TICAS, said in a statement. “With so many other colleges offering lower price, higher quality career education programs, it’s unclear why this agreement is in the interests of either students or taxpayers.”

Higher Ed Not Debt, a coalition of progressive organizations and unions that focuses on student loan issues, similarly took issue with ECMC’s “storied history of harshly preventing the discharge of students’ loans in bankruptcy.”

“While bailing out 56 schools, the sale treats the more than 30,000 students like financial assets,” Maggie Thompson, the group’s campaign manager, said in a statement. “All students should have the opportunity to opt-out of the sale and receive full refunds including full loan discharges of both federal and private loans.”

Durbin, the top-ranking Democratic Senator, has relentlessly criticized Corinthian in recent months. He did not directly praise or criticize Thursday’s agreement, saying only that the sale of the campuses “should focus on sparing the students who have been victimized and the taxpayers who continue to be on the hook.” 

This was an opportunity for the U.S. Department of Education to close down some of the lowest-performing colleges in the nation. This was an opportunity to take a stand against the entire for-profit sector. But the Department of Education structured a deal to save what should have been closed. A lost opportunity. But it does refute those critics from the for-profit sector who claim that their online institutions are unfairly targeted by Democrats.