NY Times wants help for students of predatory schools

The New York Times ran a very strong editorial criticizing for-profit schools for their predatory practices and supporting debt relief for the students who have been victimized by what the editors called :crooked schools." It is reprinted below in its entirety:

State attorneys general have long served on the front lines of the struggle to control and discipline predatory for-profit colleges that saddle students with crippling debt while granting them useless degrees, or no degrees at all. On April 9, nine of them who know firsthand how people can be deceived and bled dry sent a letter to the Department of Education, asking it to provide restitution — and help fix the problem — by forgiving the federal student loans of people harmed by crooked schools. The letter makes a strong case for prompt action.

The problem of for-profit schools received national exposure last year when Corinthian Colleges, one of the nation’s largest operators of for-profit colleges and trade schools, collapsed in the midst of a federal investigation. The company agreed to shut down or sell about 100 campuses. Earlier this week, the Department of Education fined Corinthian $30 million for misrepresenting job placement rates in one of the chains it owns, saying that the company had “violated students’ and taxpayers’ trust.”

Corinthian was already facing a lawsuit brought by the California attorney general, Kamala Harris, who accused the company of a host of wrongs, including lying to students and investors about job placement programs. The federal Consumer Financial Protection Bureau subsequently sued Corinthian on grounds that it had “lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services.”

The idea of forgiving these loans altogether gained traction when a group of former Corinthian students refused to repay their loans, which they claimed were often the product of a predatory private lending scheme. The group, part of an organization called the Debt Collective, noted that the Department of Education had broad authority to forgive debt in cases where schools had committed wrongdoing. The department could then force the offending schools to reimburse the government.

In December, 13 Senate Democrats urged the department to immediately forgive loans for Corinthian borrowers covered by lawsuits filed at the federal or state levels. In the April 9 letter to Education Secretary Arne Duncan, state attorneys general from California, Connecticut, Illinois, Kentucky, Massachusetts, New Mexico, New York, Oregon and Washington lent their voices to the forgiveness campaign, urging the department to “immediately relieve borrowers of the obligation to repay federal student loans that were incurred as a result of violations of state law by Corinthian Colleges, Inc.”

The letter said: “These cases against Corinthian have unmasked a school that relentlessly pursued potential students — including veterans, single parents, and first-time higher education seekers — promising jobs and high earnings, and preying on their hopes in an effort to secure federal funds.” The complaint from the attorneys general went beyond Corinthian to a systemwide problem: “Our greatest concern comes from certain large, predatory for-profit schools that are actively undermining our federal loan programs, depriving students of the education they promise and that the students deserve. These institutions seem to exist largely to capture federal loan dollars and aggressively market their programs to veterans and low-income Americans.”

  The attorneys general promised to help the federal government recoup loan balances from schools that violated state laws or benefited from unlawful deception. Over the last 20 years, the Department of Education has received only a handful of requests from borrowers seeking to escape repayment on grounds of wrongdoing by schools. Evaluating many such requests will be difficult. But the evidence shows that such a system is needed and that relief is long overdue.

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.

Federal Government sues Corinthian College

Yesterday,  the Consumer Financial Protection Bureau (CFPB) sued for-profit college chain Corinthian Colleges, Inc. for its illegal predatory lending scheme. The Bureau alleges that Corinthian lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school. To protect current and past students of the Corinthian schools, the Bureau is seeking to halt these practices and is requesting the court to grant relief to the students who collectively have taken out more than $500 million in private student loans.

“For too many students, Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” said CFPB Director Richard Corday. “We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school. We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans.”

The complaint against Corinthian can be found at: http://files.consumerfinance.gov/f/201409_cfpb_complaint_corinthian.pdf

Corinthian Colleges, Inc. is one of the largest for-profit, post-secondary education companies in the United States. The publicly traded company has more than 100 school campuses across the country. The company operates schools under the names Everest, Heald, and WyoTech. As of last March, the company had approximately 74,000 students.

Corinthian opened an Everest College campus in Milwaukee in 2011 with the support of the Metropolitan Milwaukee Chamber of Commerce's President Tim Sheehy and the Commissioner of the Department of City Development Rocky Marcoux. Controversial from the start because of lawsuits alleging fraudulent practices in other states, Corinthian closed its Milwaukee Everest campus less than two years after it opened. At the time it closed, Everest had a drop-out rate of more than 50% and a job placement rate of less than 6%. 

In June, the U.S. Department of Education delayed Corinthian’s access to federal student aid dollars because of reports of malfeasance. Since then, Corinthian has been scaling down its operations as part of an agreement with the Department of Education. However, Corinthian continues to enroll new students.

Today’s CFPB lawsuit alleges a pervasive culture across the Everest, Heald, and WyoTech schools that allowed employees to routinely deceive and illegally harass private student loan borrowers. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Based on its investigation, the CFPB alleges that the schools made deceptive representations about career opportunities that induced prospective students to take out private student loans, and then used illegal tactics to collect on those loans. Today’s lawsuit covers the period from July 21, 2011 to the present.

Lured Into Loans By Lies

Most students who attend Everest, Heald, and WyoTech schools come from economically disadvantaged backgrounds and many are the first in their families to seek an education beyond a high school diploma. According to internal Corinthian documents, most students lived in households with very low income. Today’s lawsuit alleges that the schools owned by Corinthian Colleges, Inc. advertised their education as a gateway to good jobs and better careers. It alleges that throughout the Corinthian schools, consumers were lured into loans by lies, including:

 ·         Sham job placement rates: The CFPB alleges that Corinthian’s school representatives led students to think that when they graduated they were likely to land good jobs and sufficient salaries to repay their private student loans. But the CFPB believes that Corinthian inflated the job placement rates at its schools. Based on its investigation, the CFPB alleges that this included creating fictitious employers and reporting students as being placed at those fake employers.

·         One-day long “career”: According to the CFPB’s investigation, Corinthian schools told students they would have promising career options with an Everest, Heald, or WyoTech degree. But Corinthian counted a “career” as a job that merely lasted one day, with the promise of a second day.

·         Pay for placement: The CFPB also alleges that the Corinthian schools further inflated advertised job placement rates by paying employers to temporarily hire graduates. The schools did not inform students about these payments or that these jobs were temporary.

·         Craigslist career counseling: According to the CFPB’s investigation, the Corinthian schools promised students extensive and lasting career services that were not delivered. Students often had trouble contacting anyone in the career services office or getting any meaningful support. The limited career services included distributing generally available job postings from websites like Craigslist.

Predatory Loans

Tuition and fees for some Corinthian programs were more than five times the cost of similar programs at public colleges. In 2013, the Corinthian tuition and fees for an associate’s degree was $33,000 to $43,000. The tuition and fees for a bachelor’s degree at Corinthian cost $60,000 to $75,000.

The CFPB believes the Corinthian colleges deliberately inflated tuition prices to be higher than federal loan limits so that most students were forced to rely on additional sources of funding. The Corinthian schools then relied on deceptive statements regarding its education program to induce students into taking out its high-cost private student loans, known as “Genesis loans.” Today’s lawsuit alleges that under the Genesis loan program:

·         Interest rates were more than twice as expensive: Corinthian sold its students predatory loans that typically had substantially higher interest rates than federal loans. In July 2011, the Genesis loan interest rate was about 15 percent with an origination fee of 6 percent. Meanwhile, the interest rate for federal student loans during that time was about 3 percent to 7 percent, with low or no origination fees.

•  Loans were likely to fail: Corinthian expected that most of its students would ultimately default on their Genesis loans. In fact, more than 60 percent of Corinthian school students defaulted on their loans within three years. The Everest, Heald, and WyoTech schools did not tell students about these high default rates. Defaulting on private student loans can have grave consequences for consumers, including affecting a borrower’s job prospects and making it difficult to get any kind of loan for years. 

Strong-Armed by Illegal Debt Collection Tactics

Under the Genesis loan program, nearly all student borrowers were required to make monthly loan payments while attending school. This is unusual; federal loans and almost all other sources of private student loans do not require repayment until after graduation. This put pressure on Everest, Heald, and WyoTech students to come up with funding while attending school. Today’s lawsuit alleges that Corinthian took advantage of this position of power to engage in aggressive debt collection tactics. The CFPB alleges that Corinthian’s campus staff members received bonuses based in part on their success in collecting payments from students. The debt collection tactics included:

·         Pulling students out of class: The CFPB’s investigation revealed that Corinthian’s efforts to collect payments included shaming students by pulling them out of class. Financial aid officers would inform instructors and other staff that students were past due on their Genesis loans. Corinthian schools also required students to meet with campus presidents to discuss the seriousness of the overdue loans. At one Corinthian campus, students and employees referred to one financial aid staff member as the “Grim Reaper” because the staff member so frequently pulled students out of class to collect debts.

·         Putting education in jeopardy: According to the CFPB’s investigation, the Corinthian colleges jeopardized students’ academic experience by denying them education until they paid up. They blocked students’ access to school computer terminals and other academic resources. The Corinthian schools also prevented students from attending and registering for class, and from receiving their books for their next classes.

·         Withholding diplomas: According to the CFPB investigation, Corinthian schools informed students that they could not participate in the graduation ceremony or would have their certificate withheld if they were not current on their Genesis loan in-school payments. In many cases, financial aid staff threatened that if students did not become current on their loans, they could not graduate or start their externships. Some former students stated that Corinthian schools continue to withhold their certificates because they are unable to make payments on their Genesis loans.

Halting Illegal Conduct and Obtaining Relief for Private Student Loan Borrowers

Today’s lawsuit seeks, among other things, compensation for the tens of thousands of students who took out Genesis loans. The CFPB estimates that from July 2011 through March 2014, students took out approximately 130,000 private student loans to pay tuition and fees at Everest, Heald, or WyoTech colleges. Some of these loans have been paid back in part or in full; the total outstanding balance of these loans is in excess of $569 million.

The CFPB is seeking redress for all the private student loans made since July 21, 2011, including those that have been paid off. In its lawsuit, the CFPB is also seeking to keep Corinthian from continuing the illegal conduct described above, and to prevent new students from being harmed.

Today the CFPB is also publishing a special notice for current and former Corinthian students to help them navigate their options in this time of uncertainty, including information on loan discharge options.

The CFPB Notice for Current and Former Corinthian Students can be found at: http://files.consumerfinance.gov/f/201409_cfpb_notice-for-current-and-former-corinthian-students.pdf

The CFPB estimates that there is approximately $1.2 trillion in outstanding student loan debt, with more than 7 million Americans in default on more than $100 billion in balances. Students and their families can find help on how to tackle their student debt on the CFPB's website.

The Bureau’s complaint is not a finding or ruling that the defendant has actually violated the law.

Twelve Senators say Corinthian should stop enrolling students

A dozen U.S. senators, all Democrats, are pushing Corinthian Colleges Inc. to stop accepting new students in a letter to the Department of Education.

Corinthian owns the Everest College, Heald College and WyoTech schools and has about 75,000 students. Its Milwaukee campus closed after less than two years of opening with drop out rates of more than 50% and job placement rates of less than 6%.

The Education Department this week worked out a deal with Corinthian that gives it $16 million in federal student aid funds to keep the company running as it figures out a plan to sell or close many schools over the next six months. Corinthian, which has more than 100 campuses, said it will look for new owners for most of its schools and hopes to have sales agreements in place within about six months.

Santa Ana, California-based Corinthian had warned last week that it could go out of business after U.S. regulators limited its access to federal funds. The government is scrutinizing the company over allegations that it altered grades, student attendance records and falsified job placement data used in ads.

In the letter addressed to Education Department head Arne Duncan Thursday, the 12 senators said students need to be protected from the company. Iowa Senator Tom Harkin, who is also the chairman of the Senate Health, Education, Labor, and Pensions Committee, was one of the politicians who signed the letter.

"Corinthian has shown itself to be one of the worst actors in the for-profit college industry," the letter said.

Representatives from Corinthian and the Education Department did not immediately respond to a request for comment.

The letter also wants the Education Department to make sure the company explains to students its plans and to stop any for-profit education company that's under investigation from purchasing from or taking on students from Corinthian.

The entire letter is linked here.

Corinthian reaches deal with Feds to remain open

Moving to head off a cash shortfall, the consequence of the Corinthian College's failure to comply with federal reporting regulations, the controversial for-profit college announced on Monday that it had reached an agreement with the federal Department of Education that would allow it to continue operating, at least temporarily.

 Under the memorandum of understanding, Corinthian, a publicly traded company based in Santa Ana, Calif., will immediately receive $16 million in federal student aid funds — the amount it said it needed to keep operating through Friday. By July 1, the company and the government plan to agree on a transitional operating plan, specifying which schools will be sold and which will be phased out.

 The company operates 107 campuses of the Everest, Heald and WyoTech institutions, as well as online programs. It's controversial Milwaukee campus closed slightly more than a year ago, less than two years after it had opened after its job placement rates of less than 6% and drop out rates of more than 50% were revealed. 

Even with the agreement, Corinthian’s future remains shaky at best. How this will play out is uncharted territory, said Terry Hartle, senior vice president of the American Council on Education. “This avoids a precipitous closure, but it’s not a long-term or even medium-term solution,” Mr. Hartle said. “It’s a short-term agreement to see what kind of arrangement they can reach to avoid the biggest closure we have ever had, throwing 72,000 students into the street.”

 In the government’s statement, Under Secretary of Education Ted Mitchell said, “We will continue to closely monitor the teach-out or sale of Corinthian’s campuses to ensure that students are able to finish their education without interruption and that employees experience minimal disruption to their lives.”

 Corinthian has been battered by declining enrollments and a rush of federal and state investigations and lawsuits accusing it of preying on low-income students, falsifying job placement rates and leaving too many students with crippling debt and no useful job credentials. Like other for-profit higher education companies,

Corinthian receives most of its revenues from federal student aid programs — about $1.4 billion a year, the government says, from federal student loans and Pell grants for students who enroll in its programs, including health care, business, criminal justice and transportation technology.

The department warned that it could revoke some of the company’s eligibility to receive federal funding. Usually, the money arrives a few days after a student enrolls. But the Department of Education pushed Corinthian into a financial bind on June 12 by imposing a 21-day delay in the disbursement of the federal aid funds. This “heightened cash monitoring,” the department said, was a response to the company’s failure to address “ongoing concerns over the company’s practices, including falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.” Under the agreement, an independent monitor approved by the federal agency will review matters related to Corinthian’s operations, with full access to the company’s financial and operating records.

While Corinthian will be allowed to continue enrolling new students, it will have to reimburse any students who enroll in a campus found to be ineligible for federal student aid after the department’s review. “I find it disturbing that at a time when Corinthian is close to going out of business, they’re still going to allow new students to come to the ones they’re trying to sell,” said Stephen Burd, a senior policy analyst at the New America Foundation in Washington.

 Corinthian is under investigation by the Consumer Financial Protection Bureau and the Securities and Exchange Commission. It is also being sued by a number of attorneys general, including those in California and Massachusetts.

 Under the Obama administration, the Education Department has been increasing its oversight of for-profit institutions, whose students are more likely to take on large student debt and default on their student loans. The industry and the administration have been battling for several years over proposed “gainful employment” regulations, which would cut off eligibility for federal student loans for programs with too many graduates who default or earn too little money to make loan repayment realistic.

Corinthian College for sale?

Inside Higher Ed reports that Corinthian College Inc., the notorious diploma mill, that abandoned Milwaukee and hundreds of students after a disastrous run in which more than 50% of its students did not graduate and less than 6% obtained jobs, is up for sale. 

Paul Fain writes: 

Corinthian Colleges signaled on Wednesday that it was open to merging or selling off all or part of its business. But the embattled for-profit chain faces a tough market, as well as looming regulatory and legal challenges.

The company’s various holdings now enroll 75,000 students, according to a corporate filing it released this week. That’s down almost 14 percent from last year. Corinthian also reported a roughly 12 percent decline in revenue for the first three months of this year, with a net loss of $80 million.

Jack Massimino, Corinthian’s chairman and CEO, told investors that the company had slashed annual costs by $125 million -- including layoffs of 1,350 employees -- to try to adjust to slumping enrollment. And it recently closed or sold seven of its Everest College campuses.

But while the cuts helped, Massimino said, the company is not out of the woods and expects future declines.

For example, Corinthian reported that is not in compliance with some of its bank debt covenants, and has sought waivers from certain lenders. The company also disclosed that it might be tripped up by a U.S. Department of Education financial responsibility test, which has caused Corinthianproblems in the past.

“In light of current market and regulatory conditions, our board has authorized management to retain an investment banking firm to help the company explore strategic alternatives and enhance shareholder value,” Massimino said in a written statement.

In the parlance of Wall Street, working with an investment bank on “strategic alternatives” means a possible sale or merger. Even so, that doesn’t mean Corinthian is courting buyers. The company might indeed sell off part of its operations. Or Massimino might just have been reassuring jittery investors by telling them the company is open to various options.

Corinthian may have been the most recent among the publicly traded for-profits to make a major deal, but as a buyer. In 2010 the company paid $395 million for Heald College, a regional for-profit with 11 campuses and 13,000 students. Besides Heald and Everest, the company also ownsWyoTech, a chain with a focus on automotive and other technology fields.

If Corinthian does attempt to unload Heald or other pieces, it will do so amid uncertainty about regulatory and legal issues.

The company, like most for-profits, is concerned about the possible impact of proposed gainful employment regulations. Those rules, which the Obama Administration is pushing, seek to crack down on vocational programs where graduates are struggling to find work and pay of debt.

Corinthian is being sued by attorneys general in California and Massachusetts. The California lawsuit alleges that the company paid temp agencies to hire its graduates in an attempt to boost job placement rates. And Corinthian has also said it is under investigation by the Consumer Financial Protection Bureau.

“The regulatory and legal issues facing the company are serious and we're working diligently to resolve them. Our near-term operating and financial challenges are equally pressing,” Massimino told investors on Wednesday, according to an earnings call transcript. “The good news is that Corinthian has resources that deliver value to students and that have the potential to, once again, create value for shareholders.”

Read more: http://www.insidehighered.com/news/2014/05/07/corinthian-colleges-contemplates-sale-amid-declining-enrollment-and-revenue#ixzz312FI6XYK
Inside Higher Ed 

Corinthian College Inc. sued in Massachusetts

Massachusetts Attorney General Martha Coakley filed suit Thursday against Corinthian College Inc. alleging it had used aggressive and deceptive marketing and loan tactics to increase enrollments and boost profits.

Corinthian Colleges Inc. and Corinthian Schools Inc., the publicly traded industry giant with about 100 campuses in North America lured students with misleading promises of employment and pay, and left them burdened with heavy debts, according to the complaint filed in Suffolk Superior Court.

Corinthian is the parent company of Everest College, which opened in Milwaukee in 2010 and closed less than a year and half later with a job placement rate of less than 6% and graduation rates below 50%. 

Massachusetts is the latest state to take Corinthian to court. Despite settling with the state of California for almost $7 million in 2007 Corinthian has again been sued by that state's Attorney General, Kamala D. Harris, over similar allegations. 

In Massachusetts Corinthian pushed students to take out subprime loans through the school, which charged interest rates as high as 18 percent, so they could qualify for federal student loans, Coakley alleged in the complaint.

“They are promising both quality in education and employment rates that they just can’t deliver on,” Coakley said in an interview. “The only ones who are doing well in this appear to be the investors on Wall Street.”

Corinthian spokesman Kent Jenkins disputed the facts in the complaint and said after a three-year investigation, Coakley’s office had failed to produce a single complaint from a student at either Massachusetts location.

“The Massachusetts Attorney General’s Office disregards substantial, independent evidence that our two schools in Massachusetts have a strong record of offering students a quality education and treating them honestly and fairly,” the company said in a three-page statement. “We will vigorously defend the record of our campuses in Massachusetts.”

The lawsuit against Corinthian is the latest action against for-profit schools by Coakley, whose office been investigating the industry in recent years. In October, Coakley’s office reached a $425,000 settlement to reimburse former students of Sullivan & Cogliano Training Centers, Inc., a Brockton-based for-profit career school, for allegedly misrepresenting job placement numbers and making misleading statements about its medical field training programs.

The following month, Coakley’s office filed a lawsuit against the Career Institute of Framingham, alleging it falsified student signatures, enrollment records, attendance, and grades to receive proceeds from government-funded student loans. Coakley alleged the schools failed to provide students with course material and training, while leaving them tens of thousands of dollars in debt. The Career Institute, which operated as American Career Institute and shut down last year, denied the allegations. The case is ongoing.

Corinthian is one of the biggest players in for-profit education in the United States, generating $1.6 billion in revenue in 2013, according to its annual report. In Massachusetts, Corinthian operates Everest Institute, which has campuses in Brighton and Chelsea. Corinthian said in its statement that it had stopped enrolling new students at the Brighton campus and is seeking a buyer. Classes there will end in October.

Corinthian subsists largely on taxpayer-backed loans to students and focused on recruiting new students regardless of their qualifications or whether they were likely to complete or benefit from Corinthian’s programs, according to court documents. In Massachusetts, the schools offered training for dental and medical assistants, administration, medical insurance billing and coding, and massage therapy.

The Corinthian case represents the first time Coakley’s office has alleged that a for-profit school, acting as a lender, engaged in a loan scheme. In order to qualify for federal student loans, Coakley said, students had to pay a portion of the schools’ $14,000 to $16,000-a-year tuition themselves. Corinthian offered the students private loans with interest rates as high as 18 percent to help them qualify.

The legal complaint cited unnamed students who said instruction was inadequate. Some students were required to sign a statement that they had landed a job in order to receive their degree, a way for the school to inflate its job placement statistics, according to the complaint.

Toby Merrill, a lawyer at the Legal Services Center of Harvard Law School in Jamaica Plain, said she has offered legal assistance and representation to many former Corinthian students who were dissatisfied with their schooling and unable to repay their loans. She described Corinthian as “a leader in the field” of disgruntled students.

“There’s a lot of high pressure predatory practices and fraud directed at people who are definitionally the least able to understand it, “ she said. “These are people who have not been successful in traditional educational settings.”

Corinthian defended its practices, saying for the last 12 years in Massachusetts, it has provided educational opportunities to nontraditional students such as single mothers by offering flexible class schedules.

About 500 students attend both schools in Massachusetts at any given time, and the company said its graduation rates are about 60 percent, surpassing graduation rates in the state’s community college system. Graduates also land jobs between 57 and 88 percent of the time, depending on the degree.

This post is based on an article by the Boston Globe's Megan Woolhouse.

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."