Thursday, May 15, 2014

For-profit college students lose right to take diploma mills to court

In the fall of 2011, Career Education Corporation (CECO) revealed that a significant number of its schools had cooked the books on the job placement rates they were disclosing to prospective students and regulators. Now investors in the giant for-profit higher education company are about to earn a nice profit for these misdeeds.
A federal judge has given his preliminary approval to a $27.5 million settlement that CECO has reached with shareholders to put an end to a lawsuit they brought accusing the company of deceiving them about its record of placing graduates into jobs. In contrast, most of the students who were the direct victims of this deception – with the exception of students from New York State who attended CECO’s campuses – are unlikely to receive any relief for these abuses. Instead, students who enrolled in these schools based on false promises will be stuck paying off loans they took out to pay for these programs for years.
What accounts for this disparity? The answer is that investors in for-profit colleges have access to the courts for filing their grievances, while most of the sector’s students do not.
Over the last several years, the for-profit higher education industry has succeeded – with the help of the U.S. Supreme Court – in stripping these students of their right to bring class action lawsuits against their schools. For-profit colleges have achieved this by including a clause in students’ enrollment agreements that requires them to settle any disputes with the schools through binding arbitration. By signing these documents, students, often unwittingly, sign away their right to bring their cases to court and in front of a jury.
Mandatory arbitration agreements – which have become increasingly common in all sorts of consumer contracts, including those for credit cards and private student loans – put students with legitimate grievances at an extreme disadvantage compared with pursuing their cases in court.
For one thing, for-profit colleges select the third-party arbitration company that is going to hear the case, creating an incentive for arbiters to go easy on companies in order to get repeat business. Binding arbitration clauses tend to bar class actions, forcing each student who has been harmed to bring his or her individual case against the schools. Industry officials know that many students are unlikely to pursue their cases because of the cost of doing so. In addition, discovery is often limited in arbitration cases, making it difficult for students to gather evidence of wrongdoing. And arbitration decisions generally cannot be appealed.
Although many for-profit college companies have included mandatory arbitration requirements in enrollment agreements for years, these clauses were not always ironclad. Some states, like California, have long had consumer protection laws that frown on the use of binding arbitration requirements banning class actions and jury trials. Courts in those states have previously allowed students scammed by unscrupulous schools to move ahead with legal challenges.
However, in 2011, the Supreme Court changed the rules of the game. In the case AT&T Mobility LLC v. Concepcion, the nation’s highest court ruled that states can’t reject arbitration clauses as “unconscionable” solely because they bar class action lawsuits and jury trials. That decision has shut down access to the courts for most for-profit college students, as well as for consumers of most financial products.
Even judges sympathetic to students’ complaints say their hands are tied as a result of the Supreme Court’s ruling. In his opinion in a case that students brought against Westwood College accusing the company of major recruiting abuses, Judge William J. Martinez of the U.S. District Court in Denver wrote in 2011 that he regretted having to require the plaintiffs to settle their dispute through arbitration. “There is no doubt that Concepcion was a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals,” he stated.
Students aren’t entirely out of luck. The U.S. Department of Education will, under very limited circumstances, discharge the loans of students who have been defrauded. Students may also benefit from settlements that the U.S. Department of Justice or state attorneys general reach with for-profit college companies, although the restitution provided in these cases is seldom sufficient to cover students’ full debt loads. For instance, students from New York who attended Career Education Corporation campuses in recent years and have not found employment in their fields of study will receive some compensation, as a result of a settlement that the New York Attorney General reached this summer with the company over its faulty job placement rate claims. Students in other states who were similarly misled, however, are out of luck.
Congress should eliminate this injustice by barring colleges that participate in the federal student aid programs from including binding arbitration clauses in enrollment agreements, just as Democratic Senators Tom Harkin of Iowa and Al Franken of Minnesota proposed last year. As they wrote, “Colleges and universities should not be able to insulate themselves from liability by forcing students to preemptively give up their right to be protected by our nation’s laws.”
Students who have been harmed by institutions should not have fewer legal rights than investors in these companies. The real victims of abuse deserve to have their day in court too.

This article by Stephen Burd first appeared in Inside Higher Ed. It is linked here.

Wednesday, May 7, 2014

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:
Inside Higher Ed