Sen.Durbin Accuses For-Profit Corinthian College Of Defrauding Taxpayers

A top Senate Democrat has called for the Obama administration and collegiate accreditors to investigate whether a major for-profit college company, Corinthian Colleges Inc., systematically deceived students, government officials and taxpayers by inflating its job placement rates.

Citing a HuffPost investigation of Corinthian Colleges published this week, Sen. Dick Durbin of Illinois said the company's practices amounted to "an egregious misuse of taxpayer dollars."

"I write to ask the Department of Education to respond to these allegations and to spell out what, if any, direct authority the Department has to hold Corinthian accountable for this fraudulent behavior," Durbin wrote in a letter to U.S. Education Secretary Arne Duncan.

At for-profit institutions such as Corinthian's schools, job placement numbers are key both for recruiting new students and to satisfying non-profit accreditation agencies that certify the schools' standards. By meeting minimum placement goals for accreditors, Corinthian has been able to tap into federal student aid dollars totaling nearly $10 billion over the last decade -- more than 80 percent of the company's total revenue.

HuffPost drew on documents and interviews with former Corinthian career services employees in six states as part of its investigation into the company's job placement practices. These sources described a corporate culture that focused on hitting employment targets to satisfy accreditors, instead of finding quality jobs for graduates.

According to internal documents and a lawsuit from the California attorney general's office, at least three of Corinthian's Everest College campuses paid employers and a temp agency to hire students into short-term jobs as a way to boost placement numbers.

Other former employees told HuffPost that managers encouraged them to seek out employers with high turnover rates who were known to shuffle through Everest graduates. That arrangement allowed schools to place several students with the same employer over the course of a year. When a student was fired or quit due to poor conditions, according to former employees, Everest could send another graduate to the same workplace, driving up official placement rates.

Durbin sent letters this week to the Department of Education, Corinthian's two national accreditors and Corinthian's chief executive, Jack Massimino.

"You owe an explanation to your students, the public and the United States government," Durbin wrote in the letter to Massimino. "I ask that you provide an accurate accounting of how your graduates are placed in jobs in their field, the average tenure of these jobs, and any financial arrangements Corinthian has with these employers."

In an emailed response to questions, Corinthian spokesman Kent Jenkins said the allegations Durbin is referring to are "inaccurate," adding that "a number of national businesses hire dozens of our graduates every year." Jenkins said Corinthian has more than 750 career services employees, devoting far more resources to finding jobs for graduates than most community colleges.

Jenkins acknowledged that the company paid employers $2,000 to hire graduates at a campus in Decatur, Ga., during a "brief period" in 2011, but he said Corinthian discontinued the program and does not plan to use it again.

"If we find any evidence that company policy in this area has not been observed, we take decisive corrective action," Jenkins wrote.

Durbin called for Congress, the Department of Education and accreditors to end what he called a "corporate culture of deception and data manipulation."

"These deceptive practices give the illusion that this is a successful undertaking," Durbin said. "It turns out to be a charade."

Corinthian's Everest College established a Milwaukee campus in 2011 with the help of $11 million in interest free bonds from the city of Milwaukee. It closed its doors less than two years after it opened after it was discovered that its job placement rate was less than 6% and its drop-out rate more than 50%. 

Everest College accused of paying firms to boast job placement rates

An explosive Huffington Post investigation documents that Everest College paid more than a dozen companies to hire its graduates into temporary jobs before cutting them loose.

Everest College's $2,000-per-head "subsidy" program  program in Decatur, Ga., stands among an array of tactics used for years by the institution's parent company, Corinthian Colleges Inc., to systematically pad its job placement rates, according to a review of contract documents and lawsuits and interviews with former employees by the Post's Kirk Kirkham.

More than a marketing tool to lure new students, solid job placement rates allow the company to satisfy the accrediting bodies that oversee its nearly 100 U.S. campuses, while enabling Corinthian to tap federal student aid coffers -- a source of funding that has reached nearly $10 billion over the last decade, comprising more than 80 percent of the company's total revenue.

The practice of paying employers to hire Everest graduates ended in Decatur in late 2011, a year before Corinthian shuttered the campus. But it wasn't the only Corinthian school to try this approach, according to a lawsuit filed in San Francisco in October by the California attorney general. That complaint accuses Corinthian of employing a broad range of fraudulent marketing techniques, including overstating its job placement rates. It specifically accuses two Corinthian campuses in California of paying a temp agency to hire graduates.

 Former employees in career services offices at Everest College campuses in six states described a culture of data manipulation inside the company, one where hitting monthly employment targets took priority over finding quality positions for students. They told HuffPost that their supervisors instructed them to seek out potential employers with typically high turnover rates: That way, as one graduate left or was terminated, a spot opened up for another, enhancing the college's job placement record.

"I was directly told, 'You need to find a company that is willing to take on your students for a short period of time, and who cares if they stay?'" recalled James Proby, a former director of career services at an Everest campus in Colorado Springs, Colo., who left last year after souring on the company. "That becomes a broken system. And that's what Everest is."

Those who have worked and studied at its campuses say Corinthian is a powerful marketing machine finely calibrated to exploit hard economic times. Its business has grown swiftly during and after the Great Recession, which left tens of millions of Americans unemployed and many in search of the kind of training advertised by Corinthian's schools. Between 2007 and 2011, the company's revenues nearly doubled as enrollments soared from 62,000 to more than 93,000, according to securities filings. 

Corinthian's ubiquitous advertisements -- "A better career, a better life, a better way to get there" -- have proved alluring for workers seeking a path to new livelihoods.

"Before I signed up, they said, 'We'll find you the job,'" recalled Johnna Heath, 46, who enrolled three years ago in a course in medical billing at an Everest College campus in Everett, Wash., about 30 miles north of Seattle. "I was like, 'Oh boy, that's great. That just takes all the weight off my shoulders.'"

After years of fruitlessly searching for a job in her field, she recently moved back in with her elderly parents in California.

Robyn Smith, a former deputy attorney general in California who was part of a team that first brought suit against Corinthian in 2007, said false promises about careers are among the most objectionable practices she has seen in the for-profit college industry.

"The job placement deception is really the worst kind of deception," said Smith, now an attorney at the National Consumer Law Center. "The only reason that students are going to these colleges and getting certificates is because they want a higher-paying job. It really goes to the heart of what these students are looking for and hoping for, and that's why it's so upsetting when they graduate and can't find the kinds of jobs that were promised."

Admissions departments on Corinthian campuses function as sales forces, former Corinthian employees said, and those who work there confront strict monthly targets for enrolling new students. These former employees made clear that job placement was a central component of the company's marketing scripts, with career services offices tasked with satisfying the claims -- at least on paper.

Former career services staffers said they felt tremendous pressure from management to meet job placement goals, and to stretch the definition of a successful placement. For example, they were encouraged by executives to count dental assistant graduates who worked at a one-day volunteer event as "placed" in the field. Business graduates who got jobs moving boxes in warehouses were considered successfully employed in "logistics."

Once those jobs ended, the graduates found themselves still staring at untenable debts -- without support from their alma mater. Corinthian abruptly cut them off from further career services, according to former employees: What mattered was finding temporary positions for new graduates in order to maintain the company's official job placement rates.

Toya Smith, a former career services employee at an Everest campus in the Houston area who quit in October, said she and her colleagues were instructed to develop relationships with certain doctor's offices and other firms that were known to churn through lots of Everest students.

"It's like a recycling situation," said Smith. "It really makes you wonder how you are contributing to society. All you are doing is trying to make your numbers. But you're selling a dream to a student that you know, in reality, they are not ever going to realize."

Building A Brand

Accusations that schools leave students facing large debts and poor job prospects are perennial in the for-profit higher education industry. Corinthian owes its very existence to another major player in the business, National Education Corp., which opted to spin off some of its properties after running into trouble with the federal government two decades ago.

The National Education Corp. had owned a network of more than 50 for-profit training schools, making it one of the largest college corporations in the country. But as large numbers of its students began to default on federal student loans in the late 1980s -- more than 40 percent at some campuses -- the federal government threatened to pull funding from some of the worst-performing schools. The parent company began looking for a buyer.

Five senior managers joined to purchase 16 of National Education's schools in 1995, calling the new company Corinthian Schools Inc. They quickly expanded the business by snapping up other ailing trade schools. Four years later, Corinthian sold shares on Wall Street in an initial public offering valued at $48.6 million.

As the company continued to grow, executives saw healthy returns. David Moore, a retired Army colonel and former community college president who became Corinthian's first chief executive, initially put up $100,000 to help buy out the National Education schools, according to news accounts at the time. By 2003, with Corinthian's stock surging, his shares were worth more than $100 million.

But by the following year, Corinthian was attracting the scrutiny of investigators at the California attorney general's office. Prosecutors opened an expansive probe into irregularities in the company's job placement rates, asserting that Corinthian was violating California law by advertising numbers that were significantly higher than reality.

In 2007, the attorney general's office -- then led by Jerry Brown, now California's governor -- filed a complaint alleging a wide range of fraudulent behavior. Among the tactics described in the lawsuit: career services staff had counted students as being"placed" at non-existent businesses they'd created as part of a class project to design business cards.

Margaret Reiter, a former deputy attorney general in California who worked on the case, reflected on the widespread nature of the alleged fraud in testimony before a U.S. Senate committee in 2010.

Corinthian settled the case in July 2007, admitting no wrongdoing while agreeing to pay $5.8 million in restitution to students. As part of the settlement, Corinthian agreed to cease the activities alleged in the complaint.

As news of the attorney general's investigation trickled out, damaging Corinthian's brand and sending its stock price down, the company began renaming the majority of its schools across the country. Several including Bryman College, a chain of more than 20 campuses in a half dozen states, became Everest College. Under the new brand, and with the California settlement behind it, the company was poised for more explosive growth.

Spoils Of Hard Times

The source of that growth was the worst economic downturn since the Great Depression. As unemployment offices filled with freshly jobless people, and as financial anxiety spread, Corinthian's executives smelled a lucrative moment.

"There is no doubt that the current economic environment is challenging, but it also creates opportunities," Corinthian chief executive Jack Massimino said in a November 2008 conference call with investors. "On the positive side of the ledger, as unemployment rises, more people return to school to improve their job skills."

That was how Eric Parms found Everest College. Originally from Ohio, Parms was laid off from his job at a foundry outside Cleveland. He and his wife decided to move to Georgia, seeking a fresh start. But it was still difficult to string together enough income to support their two children. Parms had a job at a local AutoZone store, but it was barely enough to make ends meet.

He saw a television commercial for Everest in 2010 that touted career training in technical fields like air conditioning repair, plumbing and carpentry. He related to the pitch, which mentioned middle-aged parents needing to take care of their families.

"It was like, 'A year from now, you could be in a career making decent money,'" Parms recalled. "So that was my mindset."

He enrolled in the heating, ventilation and air conditioning (HVAC) program and did well, he said. The only time he missed a class was the day he found out his 7-year-old son was diagnosed with leukemia.

But after graduation, he became suspicious. Despite advertisements about job placement rates on the front end, the career services counselors were of little help. 

When he arrived at interviews they'd supposedly set up for him, potential employers often had no idea who he was, and they had never heard of Everest, he said.

Parms was persistent, so eventually the career services staff told him about a short-term opportunity to help lay electrical wire for a contractor at the Centers for Disease Control and Prevention.

The pay was solid -- nearly $19 an hour. But his employer, ADG Enterprises Inc., treated Parms and other Everest graduates on the crew in a way that heightened his sense that he'd been placed in something other than a real job.

One day the crew finished early and had nothing left to do. Rather than send the workers home early, Parms's boss declared that the Everest students were required to work 40 hours a week. He took them to a nearby Home Depot, bought a broom and told them to sweep around the job site.

At the end of the day, Parms recalled, the boss went back to Home Depot and returned the broom. "No contractor does that," Parms said. "That's what made me think something was going on."

He was laid off from ADG Enterprises when the contracting job at the CDC ended. "We busted our asses to get that job done," he said. "But once that was over, they never called any of us back."

He said that when he contacted Everest seeking further job placement help, no one returned his calls.

The school had essentially placed him in a temporary internship program that was partially financed by the company. To increase job placement rates and maintain accreditation, the Everest campus in Decatur had started a "subsidy" program in 2011, paying companies $2,000 for every student they hired.

Documents obtained by HuffPost outlined the details of this "local employer affiliation agreement" at Everest's Decatur campus. Titled "Everest stands behind its graduates," the document refers to the $2,000 bonus as a fee that would "help defray the costs of on-boarding" Everest graduates.

A former career services employee at the Decatur campus said the subsidy program was billed as a way for employers to purchase uniforms or pay for training. But the true intent was to meet placement goals, the employee said.

One of Corinthian's accreditors, the Accrediting Council for Independent Colleges and Schools, required programs to have a 67 percent job placement rate last year to avoid further scrutiny. Another similar body, the Accrediting Commission of Career Schools and Colleges, requires a 66 percent placement rate for a college to avoid additional paperwork. Corinthian reported a 69 percent overall job placement rate for its 2012 graduates, according to the company's most recent annual filing from September.

"We knew what the fine line was, if we were asked, but we all knew that it was a hiring incentive," said the former employee, who requested anonymity because of legal entanglements surrounding the job placement program.

The employee confirmed that ADG Enterprises, the contracting firm that temporarily hired Parms, participated in the $2,000-per-student program. Diana Patterson, the company's president, said she was paid to place Everest students in what she called a "short-term internship project." When the job at the CDC was complete, there was no more work for the students, she said.

The subsidy program effectively undermined the incentive for ADG and other employers to hang onto Everest graduates long-term: They could collect $2,000 just for employing a graduate for 30 days, then lay him off to vacate a space for another graduate, thereby capturing another $2,000 payment.

In several cases, employers did not send paychecks until they received the $2,000 from Everest, meaning the graduates went unpaid for nearly a month, the former employee said.

Some career services employees had family members set up dummy corporations so that they could collect the money for themselves, a former employee said. Some of those employees were later fired.

According to the former employee, top-level Corinthian executives sanctioned and even praised the subsidy program at the Decatur campus when it was launched in the summer of 2011. But in a matter of months, as problems began to surface, the tone quickly changed. Lawyers from the corporate office began showing up to take depositions. Many employees were fired.

The executive director of Everest's accreditor, Michale McComis, did not respond to questions about problems at the Decatur campus, writing in an email that the agency considers accreditation decisions to be confidential. In an annual filing with the Securities and Exchange Commission last year, Corinthian noted only that accreditors put the school on a probationary status because it was not in compliance with "required student achievement outcomes."

The lawsuit filed against Corinthian in October indicates the practice of paying employers to hire graduates wasn't confined to the Decatur campus. In that suit, the California attorney general alleges two Everest campuses in her state also paid a temp agency to place students in order to "meet the accreditation deadline and minimum placement %."

'You Had Your Chance'

The television advertisements that attracted many students to Everest may have shown graduates forging significant careers in medical assisting, criminal justice and massage therapy. But the jobs the school actually arranged for them upon graduation were far less appealing.

Whitney Gilford graduated from an Everest medical assistant program in Houston in 2011 and was promptly placed at a family-owned medical clinic. When she first started, staffers at the clinic told her that lots of Everest students came through but rarely stayed.

She was paid $7.25 an hour, and was often asked to clean toilets or to do the clinic's laundry. She quit after a month. Everest's career services never helped her again, she said.

Her experience reflects the company's standard operating procedures, according to former Everest employees: Once a student is officially placed in a position, she is no longer a priority -- even if she only stays on the job for a few days or weeks.

"The jobs that we had were for the [students] who just graduated," said Ivana Lodovici, a former career services director at an Everest campus outside Miami, who was fired after failing to meet job placement quotas. "We were not allowed to re-place people who had already been placed. It was kind of like, 'You had your chance, that's too bad.'"

Ali Lueder, who worked in career services at an Everest campus outside Chicago, said she was reprimanded for trying to help students who had been recently placed but then fired.

"You don't answer their calls, you don't respond to their emails," she recalled a manager saying. "Sure they're angry, but you just keep ignoring them and eventually they get so fed up they stop calling."

After his initial contract job ended, Eric Parms was forced to seek work without Everest College career services' support. He quickly found himself unprepared for the difficulties of making his way in the HVAC field. When he interviewed for jobs with contractors, Parms said, many of them expressed doubt about the quality of Everest's training, and were unwilling to take a chance on an inexperienced recent graduate.

To work on his own, he would need a Georgia contractor's license. But getting the license required years of experience and written recommendations from other licensed contractors. Parms said Everest never disclosed that fact during the admissions process or while he was attending classes.

His wife, Leticia, also went to Everest to study medical assisting. She hasn't found a job in her field, either. Lately, Parms has been shuffling through temp agencies, stringing together hours working at factories.

With only part-time work for more than two years, Parms has struggled to support his family. After his youngest son, Corleone, was diagnosed with a rare form of leukemia in 2011, doctors recommended an experimental treatment. The medicine is financed by a pharmaceutical company, so the family hasn't had to face any out-of-pocket expenses. 

"You just get tired of it. I kept giving it my all, and I got the same results," Parms said. "Everest has been in the rear-view mirror for a long time now."

Obama Administration Revisits For-Profit College Student Debt Regulations

By Chris Kikham

The Obama administration has resumed efforts to rein in abuses by for-profit colleges that leave students deep in debt and unable to find decent jobs, renewing a 2-year-old battle over regulations that has produced little more than bitterness and litigation.

The so-called gainful employment regulations are intended to judge the effectiveness of for-profit and other vocational programs by examining whether students are able to manage their debts after leaving school. Programs that leave students with unsustainable debts would face sanctions, including disqualification from federal student loan and grant programs -- the source of nearly 90 percent of revenue at some for-profit colleges.

"This is really designed to weed out the worst of the worst actors," said Mamie Voight, assistant director for higher education research and policy at the Education Trust, a student advocacy group. "It's intended to remove those as options from the table for students, and to make sure that we're not investing taxpayer dollars in college programs that are not providing students with even a minimal level of value."

Representatives of the for-profit college industry, which mounted a $13 million lobbying campaign to weaken the rules in 2011 and convinced a federal judge to strike down the regulations last year, struck a defiant tone earlier this month when the administration announced it was revisiting the regulations. Steve Gunderson, the president and chief executive of the Association of Private Sector Colleges and Universities, said in a statement that the group was "extremely disappointed," calling the effort a "faulty and confrontational process."

The trade group declined to comment beyond a statement and other public comments submitted in recent months. But those in support of tighter regulations say they expect the industry to mount a pressure campaign similar to the one two years ago, when for-profit colleges hired prominent Democratic lobbyists, such as former House Majority Leader Dick Gephardt and Tony Podesta, to buttonhole administration officials and congressional Democrats.

"I think it will be a fight again; that's inevitable," said Robyn Smith, a former deputy attorney general in California who works on student loan issues with the National Consumer Law Center. "A lot of it depends on the will of the department to stand firm, and its willingness to enact a strong rule."

The Department of Education declined to comment on the rulemaking process, beyond describing how negotiators will be selected and when public hearings will be scheduled.

State attorneys general, veterans organizations and consumer advocacy groups have submitted dozens of comments to the administration in recent months, calling for Department of Education officials to come up with a much stronger version of the rules they released in 2011. Those regulations were widely viewed as being watered down in the face of industry lobbying, allowing subpar programs far too much leeway to remain in compliance.

A security training program in Miami, for example, would have dodged the stiffest sanctions even though 85 percent of its students were unable to pay minimal amounts on loans and had debts that consumed 70 percent of their discretionary income.

"Right now there is no accountability," said Lauren Asher, president of the Institute for College Access & Success, a student advocacy group that has pushed for stronger government oversight of for-profit colleges. "Programs that routinely leave students with debts they cannot repay still have unlimited access to federal funds."

The Obama administration began examining troubles at for-profit colleges in 2009, convening panels to gauge whether career college programs -- both for-profit and non-profit -- were satisfying a federal law that required such schools to show they prepare students for "gainful employment in a recognized occupation."

Consumer advocates had long pointed out that the for-profit college sector was taking in a disproportionate amount of federal aid dollars: Despite educating only about 10 percent of students, for-profit colleges receive nearly a quarter of federal loan and grant money and contribute to about 47 percent of federal loan defaults.
The Department of Education determined that programs with high numbers of students who were unable to repay loans, or who had excessive debt burdens compared to income, would be subject to sanctions, including disqualification from federal student loan and grant programs.

The final gainful employment rules released by the administration two years ago were significantly weakened from an earlier proposed version, after vigorous lobbying from the industry. The most significant change was that schools had to fail three student debt measurements -- a student loan repayment rate and two measurements of debt compared to income -- in three out of four years to be disqualified. The original version of the rule would have disqualified programs that failed all three measurements in just one year.

The Department of Education released a test batch of data last summer showing that only a tiny fraction of programs -- just 5 percent of those subject to the rules -- would have failed all three measurements. Yet the data showed abysmal student outcomes for hundreds of programs that would have remained eligible because they passed one of the tests.

In more than 500 programs, fewer than 20 percent of students were repaying at least a portion of their student loan debt, according to the data.

At one of those programs, a securities services and management degree from Everest Institute in Miami, only 15 percent of students were repaying at least one dollar of their loans within a year. More than 70 percent of graduates' discretionary income was eaten up by debt from the program, indicating that students were unable to find jobs with decent wages. But the program was still able to pass the third test, the measurement of debt to total annual income: The ratio was 11.92 percent, just under the 12 percent threshold that would have been a third strike.

Kent Jenkins, a spokesman for Corinthian Colleges Inc., which owns Everest, pointed out that the Department of Education's data was several years old, saying the Miami program is "one of 637 that were evaluated; the data you cite is five years old, and the metrics you are applying have been struck down in court." He said the company is eliminating programs that don't meet standards on job placement and completion rates. "We are working hard to make sure our programs offer our students solid educational and economic value," he wrote in an email.

The snapshot of data released last summer is the only one that exists, after U.S. District Judge Rudolph Contreras struck down central parts of the administration's gainful employment rules last year as part of a federal lawsuit filed by the for-profit college trade association.

Although Contreras's ruling forced the administration to redo the process, the judge specifically stated that the Department of Education had the right to craft such regulations -- something the industry's lobbyists had contested for years.

"Concerned about inadequate programs and unscrupulous institutions, the Department has gone looking for rats in ratholes -- as the statute empowers it to do," Contreras wrote in his decision last summer.

The issue was technical: Contreras said the administration had not conducted studies to back up its student loan repayment threshold of 35 percent.

Going forward, the Department of Education is looking for representatives of colleges, student groups, consumer advocacy organizations and state attorneys general to serve on a committee to craft the rules. The committees will meet in September and October to hash out specifics and forward decisions on to the department.

Over the last two years, fortunes have significantly shifted for the industry. Increased government scrutiny, including the formation of a 32-state working group of attorneys general and investigations by the Consumer Financial Protection Bureau, has caused stock prices and enrollments to tumble. Shares for the Apollo Group, which owns the University of Phoenix, have tumbled more than 77 percent from a high in 2009.
Enrollments at Apollo schools have fallen 22 percent since 2010, and enrollments at ITT Educational Services have fallen more than 27 percent over the same period, according to securities filings.
Tom Tarantino, a chief policy officer with Iraq and Afghanistan Veterans of America, said he is glad there is more consumer awareness of unscrupulous programs, but he thinks further regulations are needed to encourage systemic change in the business model.

"They're spending a lot of money defending their industry, as opposed to spending money to improve their industry," said Tarantino, whose group has criticized some for-profit college programs for targeting veterans and GI Bill money. "If they had invested as much money in improving their educational programs as they have in lobbying and marketing and recruiting, there would be some really outstanding programs."