BuzzFeed Business. August 5, 2014.
The Department of Education has consistently maintained that it “didn’t know” how precarious the financial situation of Corinthian Colleges was when it moved to cut off the for-profit college company’s access to federal funding — leading the to the for-profit college operator’s collapse.
But previously unpublished documents provided to BuzzFeed by the Department of Education show that the department was well aware of many details of the company’s recent financial situation — including Corinthian’s minuscule cash balance and its May 2014 disclosures that it had violated its bank covenants — and was actively trying to obtain more detailed financial information about the company. In a May 13 letter addressed to Corinthian vice president Linda Buchanan, the department detailed all of the troubled company’s financial woes and asked Corinthian for updates on its financial situation, including its liquid cash availability and “projected capital expenditures” and copies of all of the company’s debt covenants.
The Department of Education declined to disclose whether or not it ever received the requested updates, citing an ongoing investigation into Corinthian’s financials, and Kent Jenkins, a spokesman for Corinthian, said only that the company had “responded” to the letter, but could not detail the documents it had provided the federal agency.
If Corinthian did provide the requested financial documents, the Department of Education would have had access to an even more detailed financial picture than the letter reveals, including information on Corinthian’s liquid assets as late as May 22, the letter’s deadline for response. The department has a special division devoted to tracking and understanding for-profit companies’ financials, called the Publicly Traded and Large Schools Workgroup, one that a senior education official said “apparently didn’t work in the case of Corinthian.”
Many observers of the industry had been operating on the assumption that the Education Department had somehow missed signs of Corinthian’s collapse that most others were aware of, an idea that the May 13 letter contradicts. Trace Urdan, a senior analyst at Wells Fargo, said that the Department of Education’s apparently detailed knowledge of Corinthian’s financials “definitely mitigates the idea that they didn’t know what they were doing. They apparently knew enough to be asking the right questions.”
Dorie Nolt, a spokesperson for the Department of Education, said the official who said they were unaware of the company’s cash situation was referring to the company’s financials on a week-to-week basis, not their public earnings reports, which the department has always monitored. The department has previously said it is “Not in the business of ensuring Corinthian’s financial health,” but rather ensuring it is fulfilling obligations to its students.
The federal government essentially brought about the shutdown of Corinthian after the Department of Education placed the company on a 21-day cash hold, restricting the company’s access to the flow of federal loan money that makes up 90 percent of its revenue. It did so based on Corinthian’s alleged failure to produce required documents related to its allegedly falsified job-placement rates and marketing practices, which have both been the subject of lawsuits. The company warned it didn’t have enough cash on hand to cope with the funding delay and was headed towards bankruptcy, and ultimately reached an agreement to close or sell all of its campuses.
At the time, many observers credited the government with finding a way to shut down one of the for-profit college sector’s worst actors. But the department quickly worked to dispel those allegations. In a July 7 briefing call with reporters, an official said, “We did not know the cash situation” and that it was “surprised” that the cash hold drove the company into bankruptcy.
Backing their position, Iowa Senator Tom Harkin, the chairman of the Health, Education, Labor, and Pensions Committee, wrote in a letter Tuesday that “though financial analysts were well-aware of the precarious financial situation of Corinthian, the Department apparently was not.”
Urdan, of Wells Fargo, said that while he doesn’t believe the department acted with “sinister” intentions, some the investors he talks to see other motives. Urdan said many investors in for-profit colleges are operating on the belief that the Department of Education may have intentionally shut down Corinthian — a belief that may have contributed to a mass sell-off yesterday of the stock of ITT Educational, another for-profit college that may be subject to a 21-day hold like the one imposed on Corinthian.