CAPPS - Avocacy and Communication Professional Development

California Association of Private Postsecondary Schools

Schafer: Students lose out from death of Corinthian Colleges

07/24/2014

StarTribune. July 15, 2014.

The Obama administration just mortally wounded Corinthian Colleges, a for-profit higher education company, and the reaction was predictable.

Corinthian had “finally come to a kind of reckoning,” read a New York Times editorial that called for even more-rigorous regulation to head off exploitation of poor students for their federal loan money.

Across town at the Wall Street Journal’s editorial page, the defenders of the free market complained bitterly that “the Obama administration has targeted for-profit colleges as if they are enemy combatants. … Does the White House plan to liquidate the IRS, too?”

Perhaps from a distance it’s easy to portray the demise of Corinthian as a story with good guys and bad guys.

Closer to the ground, like at Corinthian’s campus in Eagan, it looks more complicated. The only easy call is how this one will turn out for the people with the most at stake, and that’s the mostly poor moms who are just trying to complete some training to land a better job.

For them it can’t be a happy ending.

As it turned out, the Department of Education didn’t even mean to shut Corinthian down, having done so more or less by accident. AsWells Fargo Securities analyst Trace Urdan put it, “I almost wish that the department had done it willingly.”

At least then it would be easier to figure out where the industry stood with regulators.

Southern California-based Corinthian has had more than its share of regulatory and legal issues. The one that tipped it over started as a Department of Education request for a voluminous amount of data after reports of false grad job placement data at some campuses.

Whether the company stonewalled or was overwhelmed by the request isn’t clear. The one judgment that did matter was at the Department of Education, which decided it wasn’t getting what it wanted. It slapped a 21-day hold on financial aid funds from the federal government.

The company was in no financial shape to weather a payment delay. When the Department of Education realized that, together they worked out a way to wind down Corinthian in an orderly way. That means Corinthian will find buyers for 85 U.S. schools and shut the rest once the current students are finished.

Corinthian’s school in Eagan, operated under the company’s Everest Institute brand, will close.

As Urdan explained, Cor­inthian should have easily been able to survive a 21-day hold, if only it had cut more costs and otherwise managed better in the recent protracted industry slump. It will be selling some valuable assets, too, for even in a down market a lot of money can be made at a for-profit school. Each student past break-even enrollment is highly profitable.

The best part of the business model is that there’s no reason to worry about customers not paying their bills, because the credit risk is almost entirely shouldered by the U.S. taxpayer. The school gets the loan money directly, not from individual students.

That kind of industry structure provides plenty of incentive for opportunistic operators to get live bodies in the door whether or not they have a shot at completing the program, just to get hold of their federal loan funds. That, in a nutshell, is why there is a thicket of regulations now and calls for stricter ones from consumer advocates.

At first blush, Corinthian looks like a company no one could miss. It was hugely dependent on the federal taxpayer, with about $1.4 billion of its $1.6 billion of 2013 revenue was from a federal source.

The most recent data from the Department of Education on the ability of its graduates to pay back their loans isn’t that encouraging, either. For the 2009 year, the three-year default rate was 29.5 percent for students from Everest Institute in Eagan.

The corresponding default rate for students of Century College, a well-regarded community college in White Bear Lake, was only about half that.

Community colleges are far more forgiving financially than for-profit colleges, and dropping out of a for-profit school is much worse than never having started. But as Urdan described it, the mission of schools like Everest is to serve people who find ­community college to be a reach.

“The gist of this thing is that at Corinthian you are dealing with students that are really, really hard to serve,” Urdan said. “And yet Corin­thian’s completion rates, for the most part, are far superior to those of comparable community colleges.”

At the Eagan facility, 83 percent of the students are female. The biggest ethnic group is African-American, at 37 percent. Over half the students are 25 or older.

Everest got its students by being user-friendly, beginning with a small size at about 200 students in Eagan. For time-pressed single parents, it started a program every month, has classes starting at 6 a.m. as well as ones that end at 10 p.m., with sessions on weekends as well. If a student misses a class, he or she gets a call from a staff member within a day.

And with this group of students, Everest in Eagan had as a graduation rate of 61 percent, based on the students who began in 2010-2011. That might not seem especially successful, but the comparable combined graduation and transfer-out rate, meaning a transfer to another college, was 40 percent for Century College.

The kind of students now served by Everest hopefully will be served by community colleges. In Corinthian surveys, however, “over one-third of the students had attended community college before,” spokesman Kent Jenkins said. “They’ve tried it, and it didn’t work for them.”

So a for-profit education company with plenty of critics will soon be history. For the people it served, the only thing that’s really happened is one more option got taken off the table.

It’s not like they had all that many great ones before.