California Attorney General Sues Corinthian

SAN FRANCISCO -- Attorney General Kamala D. Harris today filed a lawsuit against Corinthian Colleges, Inc. (CCI) and its subsidiaries that operate Everest, Heald and WyoTech colleges for false and predatory advertising, intentional misrepresentations to students, securities fraud and unlawful use of military seals in advertisements.

The complaint alleges that CCI intentionally targeted low-income, vulnerable Californians through deceptive and false advertisements and aggressive marketing campaigns that misrepresented job placement rates and school programs. CCI deployed these advertisements through persistent internet, telemarketing and television ad campaigns. The complaint further alleges that Corinthian executives knowingly misrepresented job placement rates to investors and accrediting agencies, which harmed students, investors and taxpayers.

“The predatory scheme devised by executives at Corinthian Colleges, Inc. is unconscionable. Designed to rake in profits and mislead investors, they targeted some of our state’s most particularly vulnerable people—including low income, single mothers and veterans returning from combat,” Attorney General Harris said.

“My office will continue our investigation into the for-profit college industry and will hold accountable those responsible for these illegal, exploitative practices.”

According to Harris’ complaint, CCI’s predatory marketing efforts specifically target vulnerable, low-income job seekers and single parents who have annual incomes near the federal poverty line. In internal company documents obtained by the Department of Justice, CCI describes its target demographic as “isolated,” “impatient,” individuals with “low self-esteem,” who have “few people in their lives who care about them” and who are “stuck” and “unable to see and plan well for future.”

According to the complaint, CCI advertised job placement rates as high as 100% for specific programs when, in some cases, there is no evidence that a single student obtained a job during the specified time frame.

The complaint further alleges that CCI runs millions of online and mobile ads offering ultrasound, x-ray, radiology, and dialysis technician programs at their California campuses—when, in fact, CCI does not offer those programs. CCI’s call center agents are disciplined if they tell callers that CCI does not offer these programs. Additionally, according to the complaint, CCI includes official Army, Navy, Air Force, Marine Corps, and Coast Guard seals in mailings and on web sites without authorization and in violation of California law.

The complaint alleges that CCI committed securities fraud by reporting a nationwide job placement rate of 68.1% in presentations to investors, when senior executives knew this percentage was false. The complaint describes internal audits emailed to CCI executives that show job placement data error rates between 53% and 70%. The complaint references an email from a CCI executive which explains that in 2011, two Everest College campuses (Hayward and San Francisco) paid a temporary employment agency “to place students to meet the accreditation deadline and minimum placement %.” The complaint also states that CCI double-counted job placements and failed to maintain required records of reported job placements.

According to a recent CCI securities filing, the average tuition for a CCI associate’s degree is $40,000 and the average tuition for an online CCI associate’s degree is $34,000. The average tuition for CCI’s non-degree healthcare programs is $17,000.

CCI is based in Santa Ana and currently operates 24 Everest, Heald and WyoTech campuses in California, 111 total campuses in North America and three online programs. Out of the 81,000 students who attend CCI colleges, approximately 27,000 (33%) are in California.

Corinthian opened a controversial Everest campus in Milwaukee, Wisconsin in 2011. The city provided the campuses' developer with $11 million in interest free bonds. Milwaukee's Everest campus closed a year and one half later with a  drop out rate of more than 50% and a job placement rate of less than 6%. CCI promised to pay off the federal financial aid loans of the students who had not completed their degrees.

CCI is a publicly traded corporation with assets of over $1 billion. Federal funds account for almost all of CCI’s annual revenue.

In July 2013, Attorney General Harris filed a separate lawsuit in Sacramento Superior Court to enforce an investigative subpoena against Bridgepoint Education Inc., operator of Ashford University, as part of an investigation of that company’s practices.

A copy of the complaint is attached to the electronic version of this release at: http://oag.ca.gov/news

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