Corinthian Colleges: For-Profit Schools Preying on the Vulnerable While Soaking Up Tax Dollars

To really grasp the significance of what is happening to Corinthian Colleges, I urge you to read Suzanne Mettler’s new book, Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream.  The book is a broader exploration of the laws that shape policy for colleges and universities, but one of the topics it explores is the explosive growth of for-profit colleges after 2006, when Congress removed the rule that to qualify their students for federal loans, colleges must provide at least 50 percent of a student’s education in person.  In other words, buried in 2006 federal budget, Congress expanded federally backed student loans for colleges that provide 100 percent of a student’s education on-line.

Mettler describes soaring enrollments: “In the next five years after the demise of the 50 percent rule, enrollments nearly doubled in the for-profit sector, and revenues soared… The Apollo’s University of Phoenix and Kaplan, owned by the Washington Post, doubled their revenues—and the default rates of their students climbed at the same pace.” (p. 107)  The other thing that grew with soaring profits was the investment by the for-profit colleges in Congressional lobbying.  “During the 2007-2008 election season, for example, the Apollo Group played a prominent role.  Not only did it lead the for-profit colleges in campaign contributions, but by donating over $11 million, it ranked twenty-eighth among all organizations and businesses nationwide.  It spent approximately twice as much as Goldman Sachs, JP Jorgan Chase, Bank of America, Time Warner, and Walmart, among others, and three times as much as the US Chamber of Commerce.” (p. 110)

Congress has responded to this massive investment in lobbying.  A good part of the profits for such institutions comes directly from tax dollars in the form of federal student loans, and the default rates have skyrocketed along with the for-profit colleges’ profits.  Hence the story in recent weeks about Corinthian Colleges, which, according to Kevin Carey in the NY Times, recently posted enrollment of 72,000 students at 100 campuses across the United States (and, of course, on-line) .

According to a stunning investigation by Chris Kirkham last week for the Los Angeles Times, “The student loan pipeline fueled the company’s rapid enrollment growth, peaking at more than 110,000 students in 2010.  Corinthian charges students up to 10 times the cost of a comparable community college education.  That requires many of them to take on more debt than they can repay—leaving taxpayers on the hook for mass defaults.”

Corinthian became so dependent on federal student loan dollars that earlier this month when the U.S. Department of Education suspended its access to student financial aid, the company found itself insolvent. Kevin Carey reports that, “The taxpayers will be on the hook for some defaulted loans.  Others were backed by Corinthian itself, which has made expensive private loans to its own students despite knowing ahead of time that most of them would default.  It did this because by law, no more than 90 percent of the company’s revenues may come from federal financial aid.  Every dollar that Corinthian lent directly to students allowed it to receive an additional nine dollars in federal aid…. At its peak, Corinthian received more than half a billion dollars per year from the federal Pell Grant program, more than the entire University of California system.”

As the preface to its dissolution, the company will sell 85 of its Everest, Heald, and WyoTech college buildings and phase out 12 more as students complete programs in which they are currently enrolled.

Corinthian Colleges have been charging, on average, $40,000 for a two year associate’s degree.” According to Kirkham in the LA Times, “Nearly 37% of students who left Corinthian’s schools in 2008 defaulted on their loans within three years…” The LA Times report includes widespread stories of cooking the numbers on program completion and job placement.  One job placement officer at Everest College in Houston, Texas said she was told to place graduates with employers with high turnover rates.  “That allowed Everest to connect many students with the same company in a short period of time… driving up placement rates—a key metric for federal student aid eligibility.”

Reporting for the NY Times last month as the situation worsened for Corinthian, Floyd Norris disclosed that Corinthian’s problems did not begin with the crackdown by the U.S. Department of Education: “A suit filed by the California attorney general last year contended that Corinthian lied about the success of its former students as it focused on single mothers whose income was at or near the poverty line.  The suit quoted internal Corinthian documents as describing its target audience as ‘isolated’ and ‘impatient’ individuals with ‘low self-esteem.’  It said the company used high-pressure sales tactics and advertised on the Jerry Springer television show.”

Advertisement