Under President Barack Obama, the Department of Education has been making corporate existence very hard for for-profit colleges.
The hard-hitting regulation strategy has now claimed a major scalp. This week, Corinthian Colleges, one of the largest post-secondary education companies in North America, officially announced that it is bidding goodbye to the world.
The for-profit behemoth will attempt to sell 85 of its campuses and simply close a dozen more, reports National Public Radio.
Corinthian Colleges (Nasdaq: COCO, currently worth 23 cents a share) operates colleges under three different names. None of them are “Corinthian.” Instead, the schools are called Everest, Heald College and Wyotech.
Over 70,000 students enrolled at branch campuses across North America will be affected.
Corinthian’s immediate problems began in January when officials from the Education Department requested in-depth information about individual Corinthian students including their attendance records, the jobs they ended up getting and their Social Security numbers.
Federal officials sought the information to investigate whether the for-profit college group was abiding by regulations connecting federal aid money to various measurable outcomes for students and graduates.
For reasons that are unclear, Corinthian failed to respond to the records request to the satisfaction of Education Department officials. The bureaucrats responded by holding Corinthian’s federal aid funding for 21 days. This hold, coupled with lower enrollment and already-existing financial issues, caused a huge cash flow problem.
And thus did Corinthian Colleges rather quickly go kaput.
In the midst of the crisis, Corinthian’s executives and Education Department officials worked out a deal to allow the dying for-profit company to serve enrolled students who want to stick around to finish their degrees.
“We are pleased to have reached an agreement with ED that helps protect the interests of our students, employees and other stakeholders,” CEO Jack Massimino said in a statement obtained by NPR. “This agreement allows our students to continue their education and helps minimize the personal and financial issues that affect our 12,000 employees and their families. It also provides a blueprint for allowing most of our campuses to continue serving their students and communities under new ownership.”
The for-profit education sector has been facing immense pressure in recent years. While part of the pressure is due to slumping enrollment, the companies have brought much of the heat on themselves because of business practices that range from questionable to downright predatory.
A long, absolutely scathing U.S. Senate report entitled “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success” lays out the appalling behavior by several for-profit education players.
The report shows that Corinthian has been far from the worst offender. Nevertheless, the report criticized its corporate behavior harshly.
For example, the report notes, Corinthian took in over 80 percent of its revenue from federal financial aid programs in 2010. The previous year, it had spent $294.7 million for marketing purposes and dedicated $119.2 million to profit.
Massimino, the CEO, received a sweet $3.3 million compensation package in 2009 alone. By comparison, the president of the University of California at Irvine brought home $382,980 for the 2009-10 academic year.
Corinthian has also inflated employment numbers for its graduates, according to California’s Attorney General, and has charged its students high tuition relative to other for-profit colleges (and private, nonprofit colleges and, certainly, public colleges).
For example, students at Corinthian’s Heald College in Fresno, Calif. paid $22,275 for a degree in its medical assistant program. The same basic degree earned at Fresno City College costs $1,650. At Corinthian’s Everest College in Ontario, Calif., a four-year business degree was priced at about $82,280 compared to the same degree at UC Irvine for $55,880.
The Senate report also criticized Corinthian for its aggressive recruitment techniques — a problem endemic to many large for-profit college companies. For example, a 2005 hiring manual firmly reminded recruiters “that this is a sales position and the new hire must understand that from the very beginning.” Another document was called “Overcoming Phone Obstacles.”
Corinthian’s graduates and many dropouts have also had an embarrassingly bad collective default rate. For example, the three-year default rate for students entering repayment in 2005 at Corinthian’s Everest Institute campus in San Antonio, Texas was 32.7 percent.
Former President Bill Clinton and presumed 2016 Democratic presidential frontrunner Hillary Clinton have deep ties to another for-profit outfit, Laureate Education, an international conglomerate of aggressive, telemarketing-happy, for-profit colleges that is ensnared in controversy all over the globe. (RELATED: Why are the Clintons hawking a seedy, Soros-backed for-profit college corporation?)