Corinthian Colleges, a for-profit company that operates career training schools, is in deep trouble. Last week, the U.S. Department of Education, which has been providing Corinthian with about $1.4 billion dollars annually in student grants and loans, sent Corinthian a letter saying the company had failed to provide the Department with requested information about its operations and placing a 21-day waiting period on new federal aid after submitting student enrollment data. Yesterday, Corinthian filed a document with the Securities and Exchange Commission disclosing the education department letter and stating that if the Department does not change course, and if Corinthian cannot obtain other financing, "the Company's cash flows will not be sufficient to meet its obligations as they become due, which would cause the Company to be unable to continue as a going concern."
The Department of Education itself yesterday issued a strongly-worded statement charging Corinthian with "falsifying job placement data used in marketing claims to prospective students" and noting "allegations of altered grades and attendance." Under Secretary of Education Ted Mitchell said, "We made the decision to increase oversight of Corinthian Colleges after careful consideration and as part of our obligations to protect hardworking taxpayers and students' futures."
Industry analysts report that Corinthian has been trying to comply with the Department's information requests. Corinthian spokesman Kent Jenkins told me the company might have a comment later today.
Santa Ana, CA-based Corinthian operates Everest, Heald, and Wyotech colleges and has about 72,000 students, 23,000 online and the rest studying across 107 campuses.
The company's stock is today nearly worthless, trading at around 30 cents a share, down from almost $20 a few years ago.
As Republic Report has documented, Corinthian has one of the most troubling records of all the major for-profit college companies, and it is under investigation or being sued by eighteen state attorneys general and at least four federal agencies. Senator Dick Durbin (D-IL) and Illinois Attorney General Lisa Madigan this afternoon called on Corinthian to notify all its students of these probes and to stop enrolling new students.
Corinthian already has been announcing bad news this year, including a statement last month that it would consider selling the company or components of it. It recently closed seven campuses and laid off some 1,350 staff.
Industry sources have implied for some time that big schools like Corinthian are too big to fail, and that the government has a responsibility to keep them going, especially, perhaps, because the Obama Administration's criticisms of the sector may have hastened the decline of some companies.
This is a challenging time for students and staff at Corinthian schools. There are many students at these colleges striving hard to train for careers and build better lives. There are many instructors and staff who care deeply about helping these students get where they want to go, and they have been responsible for many student success stories. But a good number of these staff members have contacted me and others to blow the whistle on what they see as dishonest and unethical practices by Corinthian management, practices they can no longer condone. It is the cynical management and board of directors of Corinthian, and owners such as Donald Graham, not the government or anyone else, who have let down these students -- by charging them sky-high prices, admitting students whom they know cannot succeed, and failing to deliver on quality and job placement.
Corinthian has sometimes responded to critics by blaming its students. Trace Urdan is a Wells Fargo Securities stock analyst, and Wells Fargo, one of the biggest banks in the U.S., is the largest institutional investor in Corinthian, with about 17 percent of the company. Urdan has laid the blame for Corinthian's high failure rate at the feet of low-income students, or, as he once called them, "subprime" students. Urdan wrote that "essentially all of Corinthian's borrowers can be characterized as sub-prime." In response, some time ago, I engaged Urdan in a discussion on Twitter. When I cited Corinthian's abysmal record, he responded: "School offers quality instruction and opportunity. Students make of it what they will." Blaming the students that way is remarkable, given the evidence that Corinthian has engaged in fraudulent conduct. It's like saying about a restaurant that serves poison-laced food, "Diners make of it what they will." If the majority of students drop out of Corinthian schools, and the majority of students can't pay back their loans, the school is clearly doing things wrong -- charging too much, offering poor quality programs, failing to deliver on promises to train people for productive careers.
An associates degree in business at Corinthian's Everest College in Florida costs $ 46,792, while the same program at Miami Dade Community College costs $ 6,453. Two-thirds of Corinthian's associate degree students drop out; three-quarters of former students can't pay down their loans, and 36 percent default within three years, the highest rate of all publicly-traded college businesses. While its students have gone broke, Corinthian held lavish parties for top staff at locations including George Washington's Mount Vernon plantation and the San Diego Padres baseball stadium, described to me by a former staffer who said, "Our students are getting poorer, while Corinthian is getting richer." Corinthian CEO Jack Massimino's compensation in recent years has topped $3,000,000.
There will undoubtedly be serious disruptions if a major for-profit college with tens of thousands of students collapses. But the last thing government should be doing is to spend more taxpayer dollars to drive more students into bad deals at predatory colleges. Instead, in the event a school is failing financially and also failing its students, the Department should help facilitate efforts by accreditors and states to find plans to help students already enrolled to pursue their studies at better institutions. The Department also should work with partner federal agencies and others to help wronged students get relief for their debts.
The Department of Education has a responsibility to ensure that federal money does not go to schools and programs that consistently leave a large number of students worse off than when they started. The Department has done the right thing here, so far. Corinthian appears to represent a particularly egregious case of producing bad outcomes for students and then failing to be responsive to government requests for information. But other for-profit education companies must ensure quality programs at fair prices, and stop deceiving students and government overseers, or else risk a similar fate.
This article also appears on Republic Report.