Finance

Nonprofit Group to Buy 56 of Corinthian's Campuses

November 20, 2014

A nonprofit organization best known for its sometimes-controversial work in the student-loan industry is buying 56 Everest and WyoTech campuses from Corinthian Colleges Inc. The transaction, being announced on Thursday, will create the largest nonprofit career-college system in the country.

The new owners, the ECMC Group, say they plan to overhaul the colleges by making them more affordable and by shifting the curricular offerings to "ensure that skills being taught in the classrooms reflect actual work-force needs and will lead to jobs in their field of study" for students.

Everest offers certificate and associate-degree programs in health care, information technology, business, criminal justice, and the building trades. WyoTech offers programs in automotive and airplane maintenance.

ECMC will pay $24-million for the colleges, subject to some adjustments, according to a Corinthian filing with the U.S. Securities and Exchange Commission. About $12-million of that will go to the U.S. Department of Education. The 56 campuses are among the 85 in the United States that the crippled Corinthian previously agreed to sell under a deal it reached this past summer with the department.

The sale, scheduled to close in January, is still subject to final approval by the department and is likely to prompt an outcry from some student and consumer advocates, who have taken issue with ECMC’s debt-collection tactics.

As a first step toward improving affordability, ECMC said it planned to cut tuition prices by 20 percent at most of the programs at the 53 Everest campuses it is buying. ECMC said it also would improve academic counseling and remedial education at all the colleges, and would provide millions in grant aid so that students don’t have to take out private loans to pay their tuition bills. It also plans to eliminate programs where the job prospects are poor and to invest "tens of millions of dollars" in new facilities, technology, and curricula.

"There’s a lot of work that needs to be done to really bring the quality of these programs up," David Hawn, ECMC’s president and chief executive officer, said in an interview on Wednesday night.

"We think we have a unique opportunity to begin the process of transforming an industry," he said.

He declined to provide information on ECMC’s current financial resources, but according to its latest publicly available tax filings, it had net assets of about $400-million at the end of 2012.

New Approach to Recruiting

For the colleges, one of the first steps will be to "turn the marketing approach upside down," said Mr. Hawn. He said ECMC would ditch the model, common in the for-profit sector, of getting a prospective student to become engaged with a recruiter before he or she even understands what the programs are.

Under management of ECMC’s new Zenith Education Group subsidiary, Mr. Hawn said, the colleges will "ensure that the job market is really the driver" for student recruiting, not enrollment growth for the sake of growth and profits.

ECMC itself, however, has been prominently criticized for its own pursuit of profit. A front-page article in The New York Times this year called the company "ruthless" in its actions against student debtors, some of them facing life-threatening illnesses, while it was working on behalf of the federal government to collect on loans.

The article was about the Educational Credit Management Corporation, the ECMC Group subsidiary that guarantees about $30-billion in federal student loans and serves as a contractor for the federal government and other guarantee agencies to collect on debts of students who have defaulted or are seeking protection under bankruptcy laws.

"It’s a tough job on that side of our business," said Mr. Hawn, when asked on Wednesday about the allegations in the Times article. "We show as much care, concern, and compassion for the student borrowers as we can."

In October, a report from the ombudsman of the federal Consumer Financial Protection Bureau on debt-collection complaints related to student loans listed ECMC as one of the top four companies most cited by borrowers.

‘Not Getting Into the Loan Business’

As part of a nonprofit-college system, the Everest and WyoTech campuses will no longer have to comply with the federal law that requires for-profit colleges to receive no more than 90 percent of their revenue from federal student-aid programs.

Some for-profit colleges, including Corinthian, contend that the policy requires them to raise their prices even higher, leaving some students to resort to additional borrowing from private lenders or the colleges themselves, under terms that consumer advocates criticize as predatory. The financial-protection bureau sued Corinthian over just such practices in September.

Mr. Hawn said ECMC would be steering clear of that issue altogether. "We are not getting into the loan business, not now, not ever," he said.

ECMC has been in discussions with the Consumer Financial Protection Bureau, he said, as well as with a group of state attorneys general and other agencies now investigating Corinthian to ensure that those investigations would not interfere with its plans for the colleges. Without getting into specifics, Mr. Hawn said, "We feel good about where we are" with that.

But those assurances apparently didn’t extend to California, where a lawsuit filed by the state attorney general accuses the company of misrepresenting its job-placement rates, advertising programs it doesn’t offer, and other violations of consumer-protection laws.

ECMC would have liked to buy the 13 campuses there, but Mr. Hawn said that, because of that lawsuit, it determined it was "better for us to leave those campuses behind."

In addition to running colleges, Corinthian has created its own "default management" subsidiary, which works with other colleges to help them keep down their rates of student-loan default. Although ECMC also sells "default prevention" services, Mr. Hawn said it wasn’t buying that business from Corinthian. "We are focused on students and schools."

"We think this is charting a new course," said Mr. Hawn. It’s not a for-profit career school, and it’s not a community college: "This is something in between."

Correction (11/20/2014, 1:17 p.m.): The original version of this article incorrectly stated how much the U.S. Department of Education will collect from the $24-million sale of 56 campuses by Corinthian Colleges Inc. The department will receive about $12-million, not $8-million. This article has been corrected.