Administration

$30-Million Fine for Corinthian May Portend Tougher Scrutiny of For-Profits

April 15, 2015

The U.S. Department of Education has fined Corinthian Colleges $29.6 million for "misrepresentation of job-placement rates to current and prospective students in Corinthian’s Heald College system," the department said in a news release on Tuesday. The department also said it was cutting off Title IV federal student aid to two Heald campuses.

"This should be a wake-up call for consumers across the country about the abuses that can exist within the for-profit college sector," the secretary of education, Arne Duncan, said in the release. "We will continue to hold the career-college industry accountable and demand reform for the good of students and taxpayers." Corinthian said that the allegations were based on flawed analysis and that it planned "to contest everything."

The department’s readiness to impose the fine — one of its largest ever — over allegations of falsified job-placement rates may also be a sign that it is devoting renewed attention to such reporting by for-profit colleges, and could have implications that extend far beyond Corinthian.

"Clearly the department has an increased focus on this," said Debbie Cochrane, research director at the Institute for College Access and Success, an organization that has pressed for tighter regulation of for-profit colleges. "Anyone who oversees college-placement rates should also take notice," she said, referring to accreditors, state agencies that monitor colleges, and other regulators. "Everybody should be on the lookout for the kind of funny math that Corinthian seems to have been using."

For-profit colleges are particularly vulnerable to scrutiny over job-placement rates because most of them qualify for federal student aid by preparing students for careers and because their accreditors specifically require them to meet job-placement standards. But in some cases, accreditors’ policies for such reporting leave a lot of room for inconsistency.

"It’s been a kind of Wild West" in job-placement reporting, said Robert Shireman, a former department official who now runs the organization California Competes. When Mr. Shireman was in the department, he was involved in efforts to toughen regulations governing "misrepresentation" by colleges in recruiting students. He said that the department’s action on Tuesday "may be a warning signal" that it planned to pursue more such investigations on those grounds.

In its news release, the department said it had found 947 false placement rates provided to students and prospective students, as well as to accreditors and to the department.

Read the department’s letter to Corinthian Colleges.

Last year the department stepped up its financial oversight of Corinthian Colleges, a move that unexpectedly precipitated the for-profit educator’s collapse. It reached an agreement with the department to sell 95 of its campuses and teach out the rest.

The two Heald campuses were among a dozen slated to be sold, but in recent days the college’s president, Eeva K. Deshon, had asked for leniency from California’s attorney general, Kamala D. Harris, who is suing Corinthian. The Sacramento Bee reported that Ms. Deshon had said the attorney general’s office’s "unreasonable demands" were, in effect, blocking the sale of the Heald campuses.

‘Let Off the Hook’

A spokeswoman for the attorney general said on Tuesday that the office has no official role in the sale of the colleges and that Heald’s request that potential buyers receive a guarantee that would shield them from liability from the lawsuit was not acceptable.

"They want to be let off the hook for the way they defrauded students," the spokeswoman said. And even after a sale, some students who had entered Heald under "false pretenses" during Corinthian’s ownership would still be enrolled. "It’s not as simple as saying, ‘Oh, new buyers, fresh start,’" she said.

In a written statement, a spokesman for Corinthian, Joe Hixson, called the department’s claims "highly questionable" and "unsubstantiated," and he said they would threaten the sale of the Heald campuses. "These unfounded, punitive actions do nothing to advance quality education in California," he said, "but would certainly shatter the dreams and aspirations of Heald students and the careers of its employees."

Corinthian also maintained in its statement that the department had taken its actions based on "faulty data and analyses discovered and disclosed more than 18 months ago. Yesterday, we attempted unsuccessfully to forewarn the department that it should not rely upon data driven by a single erroneous report."

In an interview, Mr. Hixson said potential buyers had met with officials of the California attorney general’s office on Monday and had "received the most positive signals so far" that the state’s case might be close to settlement. Corinthian is eager to sell the campuses because it is facing pressure from its creditors and it needs the money. "We’ll only be able to extend this for so long," said Mr. Hixson, adding that the timing of the new federal fine "is very detrimental to getting that deal done."

But the California attorney general’s office said on Tuesday that its case was continuing. The California case includes allegations that echo the federal ones, as well as claims that Corinthian misused official military seals in the recruiting of veterans and misled students about the transferability of credits.

Attorney General Harris said in a written statement that she applauded the department for its action. She also took the opportunity to reiterate a request that the department "act quickly to relieve these students from their student-loan debt burdens."

Andy Thomason is a web news writer. Follow him on Twitter @arthomason.

Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.