For-profit college, Corinthian, pushed into closing by feds
I’ve been trying to sort out the situation with Corinthian Colleges. Under pressure from the Department of Education, the business agreed to sell off all its schools and close its doors. Here’s some articles and a few thoughts as I process.
7/4 – New York Times – College Group Run for Profit Looks to Close Or Sell Schools – Corinthian Colleges, which owns 100 different schools, will be winding down over the next six months.
The article says it has that long to sell the schools under an agreement with the Department of Education. I’ve not been following the issue, but it appears Corinthian has been fibbing about placement rates. If that is the issue, it bodes poorly for several sectors of the public and non-profit education world I’ve read about lately. (Oops, later articles explain only for-profit schools are required to publish placement rates. That means non-profit and state schools can’t get in trouble for cooking their numbers.)
7/4 – WSJ – Corinthian Colleges Signs Onto Plan to Dissolve Itself – Feds put 21 day hold on funding, which is a huge portion of their income (around 80%). That created an instant cash flow crisis.
7/7 – The Feed – For-Profit Corinthian Colleges to Close Down – Mr. Mead doesn’t mind seeing Corinthian get shut down by the feds. He sees a problem in pushing loans on students who aren’t quite ready for college who then wind up with huge debt.
He also sees that same problem with community colleges and non-profit institutions. Severe price increases are possible because federal loans provide the funding to pay increased prices.
Mr. Mead makes the same point that many other commentators have mentioned: there are major parallels between the government-pushed education bubble and the government-pushed housing bubble.
7/6 – Wall Street Journal – Obama’s Letters to Corinthian – Editorial points out a few things that haven’t appeared in other reports I’ve seen.
As an aside, it isn’t a good thing when you have to read WSJ editorials to find basic factual reporting. That’s what the front page of newspapers are supposed to do. As an aside to the aside, finding original reporting in WSJ editorials is a pattern I’ve noticed over the last two decades.
A few tidbits of news reporting in the editorial:
Only for-profit colleges must publish job placement rates. Public schools and non-profits need not bother. I did not realize that.
There is no standard definition of ‘job placement.’ Each state and accrediting agency can set its own definition. ED statisticians have said they don’t know how to accumulate the data to prep those calculations.
Thus, when you pick between the diverging definitions created by different regulators, let’s say the State of California, the State of New York, and your accrediting agency, the other parties can hammer you for misstatements.
Here’s the document demand that ED took action on because of Corinthian’s failure to comply:
In January DOE sent Corinthian a letter denying new program applications and demanding documentation within 30 days of every public job-placement disclosure for every Corinthian program at every campus from 2010 through 2013. The data sweepers also asked for “a list of all students placed by name and Social Security number, the students’ most recent telephone numbers and cell phone numbers, graduation dates and academic programs, job titles, start dates, employers’ names and contact information” (our emphasis).
Corinthian busted the 30 day demand, then didn’t comply with expanded demands in April and yet again more demands in May. So,
Last month DOE froze all student aid for Corinthian because it had failed “to turn over the documents.” This extraordinary violation of due process is akin to a judge issuing the death penalty while a case is in discovery.
As is usually the case with something that is complicated, there is far more involved than the surface reports (see first two linked articles above) tell us.
7/9 – WSJ – Alarm Bells Were Ringing at Corinthian – Article is working to sort through what happened between the feds and college.
ED comments say the department wasn’t aware of a cash flow problem affecting Corinthian. The goal wasn’t to shut down the company but force them to provide data the feds didn’t think was arriving fast enough.
Seems to me that when 80% of cash flow is from federal student aid, a 21 day hold in the slowest time of the year (summer) would reasonably be expected to create a life-threatening liquidity crisis.
My recollection from grad school finance courses is that running out of cash is usually the cause of a business dying. Seems to me that delaying 80% of the revenue stream by three weeks would likely kill most businesses.
One quoted expert said the hold on cash shut down the company. Another expert said strong action was long past due and well deserved.
Who were the people quoted? As expected, the first expert works for a free-market think tank and the second expert previously worked for the Department of Ed for 30 years and now works for a left-of-center think tank. Knowing just that information, I could probably provide separate one-page position papers for each expert that he would heartily agree with.
Article says new regs are expected in the fall that will hit for-profit schools particularly hard. Speculation is large numbers of schools will close as a result.
ED sources deny there is an effort to go after for-profit schools. While that is the public position, I’m wondering how many people (whether in government, for-profit, nonprofit, or media) would say otherwise in private.
Again, the article points out that the college had not yet provided the required information and that is why cash flow was put on 21 day hold. ED had made no findings yet. As for the extent of the data demands, and the requests that originated as late as May or June (see the previously mentioned WSJ editorial).
Is it possible the college was manipulating their statistics? I suppose there’s a good chance that’s the case. It’s also possible there are as many definitions as there are oversight agencies. Also possible ED just doesn’t like for-profit schools.
I’m still sorting this out. Can anyone help?