When Corinthian Colleges Inc., one of America’s largest for-profit college companies, had its flow of student aid money suspended by the Department of Education, the investigation of the chain involving 20 state attorneys general, various federal bodies, and the Department itself came to a temporary halt. The decision of the DOE to freeze these funds, expected as a 21-day hold, saw Corinthian predict its own downfall, leaving 72,000 students without tuition, and placing the American taxpayer on the hook for $1bn in federally-backed loans. The DOE took control of a supervised liquidation of Corinthian and released $16m in student aid money to keep schools open. A deal was struck whereby 85 campuses would be sold, while the remaining dozen would close. The company has revealed its plans for the closure of these schools, and in the interim period, pursuing buyers remain interested in Corinthian.
As organisations such as Corinthian collapse, the question of how for-profits fit into the higher education mix comes under scrutiny. Although many have criticised for-profit colleges as being unnecessary and deleterious, these institutions are needed to meet growing demand for workers, particularly in healthcare. This branch of the industry tends to focus on certificate granting programmes such those training medical assistants. According to the Bureau of Labor Statistics, this occupation is expected to add 162,000 jobs over the next decade, and an estimated 40% of America’s medical assistants train with for-profit colleges. That being said, the closing down of colleges such as Corinthian leaves students on uncertain ground, with debt and credits unlikely to transfer. While the closing of institutions through a “teach-out” can result in the DOE reimbursing some federal grants, students will need to contact lenders and State Departments of Education to discharge private loans; the forgiven loans will impact taxpayers.
The collapse of companies such as Corinthian may have a larger impact on how the Department of Education deals with companies in the future, according to Robyn Smith, a staff attorney at the National Consumer Law Center specialising in student aid and for-profit education issues.
According to the National Consumer Law Center’s Smith, Corinthian’s student population is mostly made up of low-income students who are not financially sophisticated. However, Smith also believes that any student who finds themselves in this situation would find it difficult as the situation is complex. In light of this, Smith and a number of other analysts are calling for a halt on new enrollments to Corinthian schools, although this could make it more difficult to sell parts of the corporation. A number of senators and the California attorney general have also called for new enrollments to stop as well.
The students who have already enrolled in Corinthian schools are being notified about the corporation’s status. However, Corinthian is still going ahead with its plans to advertise and recruit more students. It is not known what impact these actions will have on new enrollees as more schools could be closed in the future. Others may not be recertified for student aid, and some may be bought and change the programs they offer.
Despite being expensive, Corinthian’s schools have never been a bargain. A two-year degree costs up to $40,000 which is significantly more than the average tuition cost of community college, which is $6,528. The least expensive healthcare certificate that Corinthian offers is $17,000. It is concerning to note that nationally, only 10% of all for-profit college students graduate without debt. In contrast, 70% of certificate-holding community college students do not incur debt, according to the College Board.
Consumer advocates have been concerned for some time about the high loan default rates for students leaving Corinthian’s schools. While student default rates have been higher than average, the state agencies that oversee them, along with the department of education, have not provided adequate oversight.
Corinthian was founded in 1995 and by 2004 its revenue had surpassed $800m. In 2008, its revenue reached $1 billion and it had 114 campuses. However, in 2011, Corinthian started to experience difficulties and lost $111m. The company had posted negative earnings in each of the two preceding years, with sector-wide contraction being blamed for the losses. Without jobs for graduates, placement rates fall and default rates rise. This then leads to higher scrutiny from government agencies and a fall in the company’s stock price.
Corinthian has been subject to investigations by a number of government agencies and attorneys general, who were looking into allegations of inflated job placement numbers, aggressive marketing tactics, altered grades, and attendance. The Department of Education stated that Corinthian had admitted to faking job placement figures, although the corporation disputed this.
According to a legal complaint made by California’s state attorney general, Corinthian allegedly utilized temporary agencies to employ their graduates and inflate its job placement rates. For Corinthian, boosting these numbers was crucial because it not only helped attract prospective students but also justified the accreditation that allowed them access to federal funds, which contributed to more than 80% of the company’s revenue. The US Department of Education had stopped funding Corinthian on the 22nd of June due to claims made against the company, including allegations of falsifying job numbers and tampering with grades, attendance, and documentation for placement rates.
The current situation for these schools may signify the disturbance afflicting the industry. As per Kinser, we still don’t have a clear image of the for-profit sector’s future, which is going to be substantially different from what it was five years ago.
Enrollment at for-profit schools decreased by 12% between 2010 and 2012, which some analysts attribute to changes in regulations. For-profit schools are now disallowed from paying recruiters based on enrollment. Proposed regulations by the DOE would aid in determining a company’s student loan eligibility based on graduates’ default rates and earnings, which threatens the core business model of for-profit schools, according to Kinser.
One proposed solution is controlling the growth of these institutions. According to Kinser, "An institution can go from 5,000 students to 50,000 students in a couple of years."
According to Urdan, "This is already an incredibly volatile sector from the standpoint of publicly traded stocks." Nevertheless, as per the agreement between Corinthian and the Department of Education, investors and lenders are not included on the stakeholder list, which is quite concerning.