Corinthian Colleges’ Closure Raises Questions


Dan Bauman, Goldie Blumenstyk, and Sara Jerde
The Chronicle of Higher Education

The U.S. Department of Education and Corinthian Colleges may have agreed on a way to keep the for-profit education company’s colleges open for the time being, but almost everything else about Corinthian and its fate is up in the air.

And the fallout from the company’s crisis will be settling unpredictably for some time on its more than 75,000 students and the for-profit sector as a whole.

The “memorandum of understanding” signed by the department and Corinthian, and released on Monday, will give the company immediate access to $16-million in student-aid funds. The money comes as a reprieve to Corinthian, which had said that the financial restrictions imposed by the department, coupled with its existing cash-flow problems, would force the company into bankruptcy. But over the next six months, Corinthian must seek buyers for most of its colleges. Among the remaining colleges, those deemed to be underperforming or having lost eligibility for federal student-aid funds will be phased out, no longer enrolling new students.

No Corinthian colleges had been terminated from the federal student-aid programs as of Monday, said Kent Jenkins Jr., vice president for public-affairs communications at Corinthian.

Until an agreement with the department is completed, Mr. Jenkins said, a definitive list of colleges to be phased out and sold would be unavailable. Under its current arrangement, Corinthian must finalize a deal with the department by July 1. The memorandum specifies that Corinthian will provide “teach-out” services for students enrolled in programs that will be phased out.

But Corinthian’s deal with the department already puts an unprecedented number of students in limbo.

Mark B. DeFusco, a senior research associate at the University of Southern California’s Center for Higher Education and a former top manager at the University of Phoenix, said he had never seen anything like it. The for-profit sector has had closures before, “but nothing of this magnitude,” he said. Referring to Corinthian’s tens of thousands of students, he asked, “Where are they going to go?”

Worries on a Maryland Campus

Students at one of Corinthian’s colleges, an Everest Institute in Silver Spring, Md., were sent an automated voicemail on Monday morning that many said they didn’t understand.

“If they shut this one down, where do we go?” said Chrishea Harvey, a student in a medical-assistant program on the Silver Spring campus.

The question wasn’t posed in her classes on Monday, but Ms. Harvey said she planned to discuss the topic with Everest representatives this week.

Galena Beavers, another student at Everest in Silver Spring, said that, as far as she knew before Monday, she would complete her medical-assistant program this December. “This is my new beginning,” she said. “There’s a lot of us in here really trying, and really trying hard.”

Ms. Beavers said her 45-minute bus ride to the Silver Spring campus is tolerable, but a longer commute to another institution could make balancing schoolwork with her daily routine more difficult—or impossible.

“If they’re going to debate closing some branches, they should at least tell us first,” she said.

Besides its Everest Institutes, Corinthian operates Everest College, Heald College, and WyoTech campuses, at a total of more 100 locations.

Will Buyers Step Up?

Whether particular locations of any of Corinthian’s colleges will be purchased is no longer a matter for debate. Now market forces take over, according to Ben Miller, a senior policy analyst at the New America Foundation. Poor performers and rule breakers in Corinthian’s portfolio of programs will be weeded out, he said. High-quality programs will find buyers.

Privately, however, several industry insiders questioned whether the department had fully thought through the impact of its actions against Corinthian. Although the memorandum of understanding provides time for the company to seek buyers for its holdings, several of those insiders, all of whom asked not to be quoted by name, said they doubted that buyers would be lining up to acquire colleges that faced a cutoff of financial-aid eligibility. The only way a buyer would step up, they said, was if the department also provided assurances that it would approve the sales swiftly so that new owners could “staunch the bleeding” quickly.

Right now, Corinthian is “just a collection of leases and relationships, and the relationships are very fleeting,” said one. And with the likelihood that many Corinthian students will now try to transfer and few new students will enroll, “what is there to buy?”

The exceptions, some said, was its Heald College, which is regionally accredited and might attract some interest and WyoTech, which offers automotive repair and other programs.

It was also unclear on Monday whether the department realized how much at risk Corinthian was when it heightened financial oversight and instituted a short-lived delay in disbursing financial-aid funds to the company.

Mr. DeFusco said the department’s decision to give the company until July 1 to produce a plan of action could mean that it believes Corinthian was close to concluding a deal for the sale of at least some of its colleges. After all, he noted, when colleges go bankrupt, students can apply to have their federal student loans forgiven under a hardship clause. So averting a mass closure of Corinthian’s colleges could save taxpayers hundreds of millions of dollars, or more.

Student-Transfer Possibilities

Tim Foster, chief executive of the Concorde Career College, a Kansas-based system that offers programs in many of the same health-care fields as those at Corinthian’s Everest campuses, said on Friday that his institution had begun preparing for an influx of former Everest students. “We don’t view it as an easy task,” he added, noting that there were complexities in accepting students from programs whose credits and academic records may not align with Concorde’s and who may have already exhausted most of their financial-aid eligibility at Corinthian.

A spokesman for the Career Education Corporation, which has geographic and programmatic overlap with several of Corinthian’s institutions, including Everest’s online programs, said it was prepared to assist Corinthian students seeking to transfer.

In a statement, the Association of Private Sector Colleges and Universities, which represents the for-profit sector, shied away from defending Corinthian, one of its largest members. A spokesman said the group was encouraged that Corinthian and the department had reached an agreement that “protects the interests of students.”

Concerns About Other Companies

Corinthian is the first sizable for-profit education company in many years to face such a serious crackdown, but it may not be the last. Analysts at Wells Fargo said ITT Educational Services Inc. could face similar action, given a pending lawsuit filed by the Consumer Financial Protection Bureau that accuses the company of predatory lending practices. The analysts, Trace A. Urdan and Jeffrey Lee, also raised concerns about the Education Management Corporation, in the event that that debt-laden company became subject to the same heightened financial oversight the department applied to Corinthian last week.

Mr. DeFusco, of the USC center, said he believed the Education Department was sending a message with the Corinthian action—that no company in the for-profit education industry was too big to fail.

“This is a way you take out what is perceived as the weakest link in the space, and let the industry know that you are serious about enforcing regs,” Mr. DeFusco said.

Mr. Miller, of the New America Foundation, said he hoped Corinthian’s humbling had sent a message to colleges that “you can’t just talk the talk about improvement, you actually have to do something.” Corinthian “had a reputation for a long period of time of being among the more problematic actors” among for-profit institutions, he added. “Clearly that was not a sustainable business model.”

A spokeswoman for the Education Department declined to comment on the events and decisions that led up to the actions regarding Corinthian. A former department official said that while the fallout from the agreement with Corinthian would continue to land for some time, the crackdown may not have come a moment too soon.

While it’s unusual for the department to penalize such a large enterprise, “that’s what the whole system is set up for,” said David A. Bergeron, a former higher-education adviser to the U.S. secretary of education who is now vice president for postsecondary-education policy at the Center for American Progress. “The department should be criticized if it didn’t act at a point where it was concerned about the stability and longevity of the institution,” he said.

Mr. Bergeron said that Corinthian Colleges was among “a particular band of institutions that had been of concern” to the department before he left, in 2013. But he added that he doubted that Corinthian’s pending dissolution was a harbinger of an immediate wave of actions against for-profit colleges.

“There are large segments of the industry,” he said, “where there are no concerns.”