[Updated (7/2/2014, 7:45 a.m.) to include news that the parties did not reach an agreement Tuesday night.]
Negotiations between the U.S. Department of Education and Corinthian Colleges Inc. over the fate of the company’s 100-plus campuses enrolling some 75,000 students did not result in an agreement Tuesday night as the parties worked to finalize decisions on which campuses would be closed and which would be offered for sale.
“While we did not reach an agreement yet with Corinthian officials, we are optimistic that further conversations with the company will produce an acceptable plan in the next few days that protects the interests of students and taxpayers,” said Ted Mitchell, the under secretary of education, in a written statement.
The dismembering of the company was set in motion last month, when the department withheld student-aid payments to Corinthian, which the cash-strapped and debt-laden company said could force it out of business. Days later, on June 23, the department and Corinthian announced that the government would release the withheld money and that Corinthian had agreed to sell or close its campuses.
Department officials have painted that June 23 action, unprecedented in its scope, as a necessary step to protect the interests of students.
Yet even before the details of the plan were known, consumer and student advocates faulted the department for not taking action sooner, and said it was favoring its own interests over those of students. By the time the Education Department took action, Corinthian was already facing investigations by the U.S. Department of Justice, the federal Consumer Financial Protection Bureau, the U.S. Securities and Exchange Commission, and attorneys general in 20 states.
“We are concerned that the department’s primary focus is protecting the federal government’s investment, rather than protecting the people who are least responsible for the situation, the students,” said the National Consumer Law Center in an open letter to the Department of Education.
Under federal law, students who attend a college that closes may be eligible to have their federal student loans discharged, which means they would no longer be responsible for repaying money they had borrowed to pay Corinthian or their own expenses, and the government would never get back what it had lent. The fewer colleges that are forced to close, the lower the costs to taxpayers for those discharges on government-backed loans.
The Education Department has said Corinthian received $1.4-billion a year in federal student-aid funds, but neither it nor Corinthian was immediately able to say how much of that was in loans and how much was in Pell Grants.
For months before taking action, in June, the Education Department had been investigating Corinthian in response to allegations that the company had manipulated attendance records and had falsified reports of job-placement rates for its graduates, in order to obtain student-aid funds to which it was not entitled.
Corinthian has maintained that any misreports of placement rates were isolated cases.
The consumer law center’s letter also urges the secretary of education, Arne Duncan, to carry out 10 specific steps to protect students whose campuses are closed or sold, including granting full loan discharges to students whose colleges are sold because students “should not be forced to complete their programs with new owners.”
Meetings With Accreditors
The department has been meeting with the four accrediting agencies that oversee Corinthian’s Everest, WyoTech, and Heald campuses, to begin coordinating “teach out” procedures for students to transfer or complete their studies, a process that one accrediting-agency head said would “require herculean communication efforts” because of the tens of thousands of students who could be affected.
“Regardless of whether there’s a ‘for sale’ sign in the window,” even some of the campuses slated for sale may not find a buyer, said Michale S. McComis, executive director of the Accrediting Commission of Career Schools and Colleges, which accredits 40 Everest and WyoTech campuses.
None of the Corinthian campuses accredited by Mr. McComis’s agency are on probation, but in February, mindful of the continuing investigations of Corinthian, the commission ordered the company to have its job-placement reports verified by an independent third party and also prohibited the company from making substantial additions of new campuses or programs. Corinthian has just submitted that report.
The other accreditor with major oversight over Corinthian campuses, the Accrediting Council for Independent Colleges and Schools, said it had put Corinthian on “adverse condition” status about six months ago because of the many investigations the company faces. That status requires Corinthian to keep the accreditor apprised of all responses it makes to the various agencies investigating the company. The council accredits 57 Everest and WyoTech campuses.
The Education Department is likely to impose enrollment restrictions on the Corinthian campuses that aren’t slated for closure. But even if it doesn’t impose such restrictions, Albert C. Gray, president and chief executive of the accrediting council, said his agency probably would, even though that could make it harder for Corinthian to sell the campuses. “It’s a little bit of a Catch-22,” said Mr. Gray, but a necessary step “as responsible accreditors.”
Interest From Some Buyers
According to at least one industry insider, who asked not to be identified by name, several buyers are actively interested in acquiring some of Corinthian’s colleges, primarily those of the 12-campus Heald College and other individual campuses. “Most experienced buyers,” the insider said, wouldn’t necessarily be deterred by enrollment restrictions.
Two analysts with Wells Fargo Securities said that, while the dissolution of Corinthian could create opportunities for some other for-profit-college operators, the department’s actions represent “a chilling and aggressive new level of oversight that has potential consequences for the entire for-profit postsecondary sector.” With those actions, the analysts, Trace A. Urdan and Jeffrey Lee, said, “the rules have become opaque.”
To be sure, the department’s actions seemed to come quickly, at least from Corinthian’s perspective. The company had known since January 2014 that the department was seeking more information from it about job-placement reports and data related to allegations that it was altering attendance records in order to retain federal student-aid eligibility. Still, as recently as May, the company gave no public indication that its standing with the department was in jeopardy.
“There is no proceeding pending to fine any of our institutions or to limit, suspend, or terminate any of our institutions’ participation in the Title IV programs,” it said in a quarterly report, “and we have no reason to believe that any such proceeding is contemplated.” (Title IV is the section of the Higher Education Act that authorizes the federal student-loan and Pell Grant programs.)
The stern eight-page letter from the Education Department, detailing frustration over the company’s “failure to submit required documentation in a timely manner” and imposing the restrictions on disbursements of federal student aid that pushed the company over the brink, was sent a month later.
