Corinthian College Inc. manipulates student loan default rates

By Stephen Burd

In examining the student loan default rate data that the U.S. Department of Education recently released, it’s hard not to marvel at the success that Corinthian Colleges has had in driving down its schools’ two-year cohort default rates.

The for-profit higher education corporation’s two-year rates have plunged across the board, with most of them dropping by double digits. For example, the company’s Everest College campus in Thornton, Colorado saw its rates plummet, from 27.3 percent in 2009 to 3.7 percent in 2010.

Similarly, at Everest Institute in Pittsburgh, the rate dropped from 25.2 percent to a remarkably low 1.1 percent. [The company has been much less successful in lowering its schools’ 3-year default rates. Those were 34.9 percent at the Thornton campus and 28.6 percent in Pittsburgh. But the government won’t start holding schools accountable for these rates until 2014.]

How did Corinthian’s leaders achieve this remarkable feat?

Did they do it by:

A. Radically improving the quality of the programs their schools offer to ensure that their graduates have the skills they need to obtain gainful employment in their fields of study?

B. Slashing prices so that students don’t have to take on so much debt?

C. Overhauling their schools’ recruiting practices to ensure that they enroll only students who they know can succeed in their programs?

The correct answer is “none of the above.” Instead, as the Senate Committee on Health, Education, Labor and Pensions has documented, Corinthian officials have engaged in a no-holds-barred campaign to drive down their schools’ rates by pushing former students to obtain temporary forbearances and deferments on their loans. The company’s sole purpose has been to prevent these borrowers from going into default during the current two-year window when the Education Department holds schools responsible for their rates.

As long as borrowers are in deferment or forbearance, they are not required to make payments on their loans and are not in danger of defaulting. Yet federal law mandates that the Education Department include such borrowers among those who are successfully repaying their loans in the default rate calculation. As a result, colleges can artificially lower their rates by persuading their former students to take advantage of these options.

And while this may look like a win-win for both the company’s schools and their former students, that’s not the case for many of these borrowers. While putting federal student loans into forbearance allows borrowers to stop making payments temporarily, interest continues to accrue on the loans, ballooning the size of the overall debt load. The same goes for deferments on unsubsidized federal loans. Many of these borrowers could be better off making graduated or extended repayments, consolidating their loans, or entering into the Income Based Repayment Program, which would allow them to pay back their debt as a percentage of their income.

Corinthian hasn’t exactly kept its efforts secret. In fact, company officials have been quite open about their intentions with investors. But they haven’t revealed much about how they put their plan into action. So how did they do it? The answer can be found in the report (see pages 181-184) that the Senate HELP committee released in July on its investigation into the for-profit higher education industry. Citing internal company records that the committee obtained from Corinthian, the report shows the extraordinary lengths that Corinthian has gone to achieve its aim:

 

To accomplish a lower reported default rate, Corinthian hired three contractors. One was General Revenue Corporation, which devoted 60 full-time employees to call former Corinthian students who were late making payments but not yet in default. The company also hired two firms, ROI and TEAM Enterprises, to send out 30 or more people to knock on former students’ doors to secure ‘cures.’ This same document reveals that students in late stages of delinquency but not yet in default -- a period during which they are the biggest threat to Corinthian’s default rate – could be contacted up to 110 times per month. Another internal document shows that, in order to achieve the company’s desired default rate, the call center run by General Revenue Corporation would make between 2 and 2.5 million calls a year, or 429 calls per employee per day to former Corinthian students. [Emphasis added]

Corinthian also built its own internal default-management operation, complete with a call center and dozens of employees. Documents show that the default-management operations at Corinthian are run with the same high-pressure sales environment as the recruiting department. Compensation is directly tied to the number of students an employee successfully eliminates from the company’s default rate.

As part of these efforts, Corinthian started offering former students gift cards to McDonald’s to get them to contact the call center. According to the report, the company made this offer “by e-mail and mobile phone text messages, and the messages explicitly referred to postponing student loan payments.” Meanwhile, employees who met their targets were showered with praise, while those who failed were taken to task:

 

E-mails show that managers pushed employees to secure as many ‘cures’ as possible. “Team Central…you did it!” reads one e-mail sent to dozens of line-level default management employees, “We cured 243 students on Wednesday…our Division is leading [Corinthian Colleges] and that is a direct reflection of your daily efforts to drive down our CDR [cohort default rate].”

 

In addition to this message of encouragement, other e-mails demonstrate a willingness to reprimand employees if targets are not hit:“Tuesday saw the lowest number of staff calling in the past several days. This led to less calls and less students we talked to. We all know two truths: This must be a campus-wide effort and this is definitely a numbers game.”

A numbers game, indeed. By pushing former students to get forbearances and deferments on their loans, Corinthian has been able to artificially lower its schools’ rates and make sure that these institutions continue to receive hundreds of millions of dollars in federal student aid funds each year.

Suggested Reading

The Myth of Record Low Default Rates

Corinthian Colleges Shows Why Gainful Employment Rules Are Too Weak

Shape Up or Lose Out: The 218 Institutions that Must Develop Default Prevention Plans

 

Reprinted from Higher Education Watch.

Kaplan to close 9 campuses

Kaplan higher-education division will close nine campuses and consolidate four others into existing nearby locations, the company said in a Securities and Exchange Commission filing.

The company, owned by the Washington Post, said it would stop new enrollments at the nine campuses it is closing, but that it would continue teaching the students currently enrolled there.

Kaplan's decision comes only a month after Everest College announced that it would close its Milwaukee campus less than two years after it opened. Everest's job placement rate in Milwaukee was a dismal 5% and its drop out rate over 50%. Everest has agreed to pay off the federal loans of all of its Milwaukee students who dropped out without completing their program of study.

Kaplan's parent company did not give a reason for its decision to close the campuses or identify them, but in an Aug. 7 SEC filing it disclosed that an accrediting commission had warned three campuses (in Baltimore, Indianapolis and Dayton, Ohio) that they could lose accreditation “for failure to meet certain student achievement threshold requirements” and had asked for the school to respond by September.

The loss of accreditation would mean the Kaplan campuses would no longer be eligible for Title IV loans from the Education Department, the source of nearly 90 percent of Kaplan higher-education revenue.

Kaplan was still a test-prep company when the Washington Post Company bought it in 1984, after Richard D. Simmons, the president, convinced Katharine Graham of its potential for expansion and profits.

Over the last decade, Kaplan has moved aggressively into for-profit higher education, acquiring 75 small colleges and starting the huge online Kaplan University. Now, Kaplan higher education revenues eclipse not only the test-prep operations, but all the rest of the Washington Post Company’s operations.

The Washington Post's Company chairman, Donald Graham, has emerged as the highest-profile defender of for-profit education. Together, Kaplan and the Post Company spent $350,000 on lobbying in the third quarter of 2010, more than any other higher-education company. And Mr. Graham has frequently gone to Capitol Hill to argue against the regulations in private visits with lawmakers, the first time he has lobbied directly on a federal issue in a dozen years. His newspaper, too, has editorialized against the regulations.

Four whistle-blower suits against Kaplan under the federal False Claims Act have been made public in the last few years, all making accusations that the company used deceptive practices in its quest for profits, including enrolling unqualified students and paying recruiters for each student enrolled, a practice forbidden by federal law.

In addition, the suits allege, Kaplan kept students on the books after they dropped out, inflated students’ grades and manipulated placement data to continue receiving financial aid. Three of the suits, from Pittsburgh, Milwaukee and Miami, have been consolidated for trial in Miami. A fourth, from Las Vegas, is pending there.

The company said revenue at the campuses to be closed represent approximately 4 percent of total revenue for Kaplan higher education and 2 percent of the total Kaplan division, which includes other educational operations. The Post Co. said Kaplan expects to incur an estimated $18 million in restructuring costs, a portion of which would be recorded in third-quarter earnings, with the remainder recorded through the end of 2013.

Kaplan has about 70 campuses, and about a third of the division’s 67,605 students as of June 30 were on Kaplan ­higher-education campuses, with most of the rest of them studying through online programs.

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Barrett calls on Everest to pay off jobless grads loans. What will happen to the campus?

The Milwaukee Journal Sentinel reports that Milwaukee Mayor Tom Barrett has sent a letter to Everest College's parent company, Corinthian College Inc., requesting that it pay off the loans of its jobless Milwaukee graduates.

Corinthian, which is abandoning its Milwaukee operations after less than two years in operation, has already agreed to pay off the loans of those students who had dropped out, more than 50% of the students that it enrolled.

Barrett is right to insist that Corinthian  also pay for those who graduated with Everest's worthless degrees and credits that do not transfer.

Corinthian spokepersons are disingenuous when they blame their pathetically low job placement rate, not  quite 6%, on the poor economy. The Milwaukee Area Technical College has a job placement rate of 89% in the very same economy.

In addition to demanding that Corinthian pay off the jobless students' loans, the Mayor should help MATC secure favorable terms to occupy the former Everest Campus so that MATC can expand its services to students.

Dan Druml, the developer who the city assisted in developing the 6th and Mckinley site with $11
million in interest free bonds, recruited Everest to Milwaukee and defended the predatory diploma mill vigorously, calling them the right organization when he secured city approval for them to occupy his development. He needs to make amends for the problems he helped cause, including driving hundreds of very poor people even deeper into poverty, by recruiting Everest as his anchor tenant.

Mr. Druml can help rectify the damage he has inflicted on the city and its people by inviting MATC to occupy the former Everest campus. Corinthian has a nine year lease. MATC could move into the property, pay for utilities, maintenance and improvements and expand its services to students.

Druml does a lot of business in the city with the Department of City Development. He helped create the Everest problem. He should be part of the solution.

Will city leaders learn from Everest College debacle?

By Charlie Dee

Thank goodness Everest College is closing. This means no more Milwaukeeans will suffer from Everest selling jobless students dreams of success but delivering only crushing debt.

The Everest debacle leaves many questions, chief among them: Have public officials learned anything from Everest's failure, and do Milwaukee "leaders" owe anything to the students they helped rip off?

Clearly, Everest's business plan was to use its proximity to Milwaukee Area Technical College and its massive advertising budget to lure low-income students to maximize their federal loans, making huge profits for the college.

But it failed. Everest's job placement rate in Milwaukee was 6%, consistent with its abysmal record at other campuses across the country. Since MATC's placement rate is 89%, Everest apparently couldn't attract enough students to please its stockholders.

What makes this situation such a farce is that public officials were warned repeatedly that Everest was not a good corporate citizen and that the social costs associated with bringing Everest to Milwaukee would far outweigh any short-term economic benefit.

Ald. Milele Coggs, the Residents' Council of the nearby Hillside Neighborhood as well as MATC faculty leaders all warned Mayor Tom Barrett, Department of City Development chief Rocky Marcoux and the Board of Zoning Appeals about Everest's track record.

We documented that Everest in other states preyed on low-income students to take out huge loans, yet its student default rates were among the nation's highest while its job placement rates were among the lowest.

We explained that despite its promises to students, Everest was not properly accredited, so students couldn't transfer Everest's credits to regionally accredited institutions such as MATC, the University of Wisconsin-Milwaukee, Alverno College or Marquette University.

We offered city leaders examples of Everest's corporation being sued in numerous states, including paying $6.5 million to California to settle allegations of deceptive practices.

Despite this information, city leaders ignored the record and fell for the sales pitch of public relations firms. Everest first hired Evan Zeppos' firm to make the pitch, then later Carl Mueller's firm - big wheels in Democratic Party and corporate circles.

Big money buys strategic advice and influence with powerful people. Metropolitan Milwaukee Association of Commerce's Tim Sheehy hosted a reception to promote Everest.

The Journal Sentinel Editorial Board weighed in, urging BOZA to approve Everest's zoning request, arguing that educational quality should not determine what was a simple land use issue.

With those ducks lined up, getting city help was easy. The Milwaukee Redevelopment Authority granted $11 million in interest-free bonds to Dan Druml, the developer who recruited Everest.

Barrett remained tactfully quiet, but the people under him in City Hall did their jobs to grease the skids for Everest. Marcoux championed the project as a beneficial real estate deal until the 11th hour when he became officially "neutral."

At the BOZA meeting where the zoning was approved, board member Henry Szymanski voted for Everest's request and called it a "good plan."

However, Everest never created anywhere near the 100 full-time jobs it promised. While state regulators recently demanded that Everest pay off loans for dropouts and abandoned students, graduates are left with worthless degrees and huge debts.

Have our city's movers and shakers learned any lessons from this? Will they more critically evaluate developers' promises of jobs in the future?

And how about the lobbyists and lawyers Everest paid to provide the respectability it needed to snow City Hall? Have they learned to reject clients who are not healthy for the community, or will they go back to representing anyone who can pay their fees?

Most of all, will Congress finally pass strong federal regulations on the profit-making education industry? The Obama administration has proposed regulations while vice presidential candidate Paul Ryan opposes them.

Reprinted from the Milwaukee Journal Sentinel.

Charlie Dee recently retired from teaching at MATC and executive vice president of AFT Local 212, the faculty union.

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Everest's Milwaukee campus to close

Less than two years after it opened its doors, Everest College is closing its Milwaukee campus.

AFT Local 212, Alderwoman Milele Coggs, the Hillside Residence Council and MATC's District Board Chairwoman, Ann Wilson, fought to prevent Everest from setting up shop in Milwaukee because it preys on low-income students.

We warned the city officials courting Everest that it had abysmal job placement, drop-out  and graduation rates; that its student financial aid default rate was among the nation's worst; and that its credits did not transfer to most legitimate colleges and universities.

But there was too much money at stake, for Everest headquarters, Corinthian College Inc. and its stock holders, the Milwaukee developer, Dan Druml, and the lawyers and public relations firms that  made money on the Everest Project.

Rather than heed our warnings Everest boosters accused us of fearing competition. But Everest never posed a threat to MATC or any other legitimate institution of higher education because it is nothing more than a diploma mill.

Everest was a danger, however, to the students that it lured into taking out huge loans for inadequate programs and a job placement record of less than 10%. Our opposition to Everest was motivated by a sincere desire to protect the low income and minority students it sought to exploit.

In the end, a lot of folks made money off Everest short-lived stay. But its students, as we predicted, were the losers. They are left with little more than broken dreams, huge debts and credits that do not transfer.

There is much more about this sordid affair than appeared in the Milwaukee Journal Sentinel article. It will come out shortly. So stay tuned.

Dan Bice's article on the closing is linked here.