Troubled For-Profit Corinthian Colleges Shutting Down As Education Department Faces Bill

04/26/2015 05:07 pm ET | Updated Apr 27, 2015
BRENDAN SMIALOWSKI via Getty Images

Corinthian Colleges Inc., once one of the nation's largest chains of for-profit colleges, announced Sunday it is abruptly shutting down after failing to find buyers for its roughly 30 remaining campuses, leaving up to 16,000 students in the lurch and potentially costing the U.S. Department of Education tens of millions of dollars in forgone federal student loan payments.

"What these students have experienced is unacceptable," Education Undersecretary Ted Mitchell said in a blog post Sunday.

The California-based chain at its peak operated more than 120 colleges with more than 110,000 students across North America under the Everest, Wyotech and Heald brands. Last July, under pressure from the Education Department over a paperwork dispute, the company struck a deal with the Obama administration to sell or close all of its campuses over the following six-month period in order to avoid what the Education Department described as an "immediate closure," or exactly what has happened with the company's Sunday announcement.

The closure is effective Monday. Corinthian students were told in a statement posted on the company's website and via email that the company is trying to make arrangements with other schools that would enable Corinthian students to complete their studies elsewhere. Students with federal student loans who choose not to complete their programs would be eligible for full loan cancellations. Unless the Education Department recoups the money from the financially troubled company, taxpayers would eat the cost.

Corinthian said 28 campuses are closing. The Education Department put the total at 30, which includes two satellite campuses that it counts as separate locations.

"For too many students, Corinthian turned the American dream of higher ed into a nightmare of debt & despair," Rohit Chopra, the federal consumer bureau's top student loan official, wrote Sunday on Twitter.

In recent years, Corinthian has been accused by multiple federal and state authorities of systematically lying about its graduation or job placement rates, misleading potential students into enrolling and forking over tens of thousands of dollars to obtain credentials many critics believe to be of dubious value. The company annually received some $1.4 billion in federal financial aid for its students, according to the Education Department.

Corinthian finalized a deal in February to sell more than 50 of its campuses to one of the Education Department's contracted debt collectors in a transaction that effectively bailed out the company and deprived nearly 40,000 students of the chance to have their federal student loans canceled. The forced sale followed months of alleged delays by the company to turn over sufficient paperwork about its job placement rates to the Education Department.

Last summer, the department had limited Corinthian schools' access to federal financial aid, a move that ultimately set off a chain of events that culminated with Sunday's announcement. The company in a statement blamed federal and state regulators for its abrupt closure.

The surprise announcement that the company will immediately shut down its remaining campuses across five states now puts the Education Department in the exact position it had hoped to avoid. The department, led by Education Secretary Arne Duncan, had hoped to either broker a sale of the company's remaining campuses -- keeping them open for current students -- or help the company strike agreements with other schools to allow Corinthian students the opportunity to complete their programs.

"We believe that we have attempted to do everything within our power to provide a quality education and an opportunity for a better future for our students," Jack Massimino, Corinthian's chief executive, said in a statement. "Unfortunately the current regulatory environment would not allow us to complete a transaction with several interested parties that would have allowed for a seamless transition for our students. I would like to thank our employees for their selfless dedication and commitment to fulfilling the educational and career goals of all of our students."

The company said it had been in what it described as "advanced negotiations" with several potential buyers for its Heald campuses as well as other schools that would take in some Corinthian students in California wishing to complete their studies. But the company said its efforts were stymied "largely as a result of federal and state regulators seeking to impose financial penalties and conditions on buyers and teach-out partners."

Kamala Harris, California's attorney general, has a pending lawsuit against the company alleging it misled students and investors about its job placement rates. The state of California in 2007 settled a previous investigation into Corinthian after amassing evidence that the company allegedly inflated its job placement rates.

Several state attorneys general and the federal Consumer Financial Protection Bureau have sued the company, alleging it lied to potential students. The Education Department meanwhile allowed the company's schools to continue enrolling students and tap taxpayer funds for its bottom line.

Mitchell said Sunday that the Education Department would send its staff "to as many campuses as possible to talk directly with students." The department was in discussions with state community college systems to ensure that Corinthian students could continue their studies, he added, while some students could be eligible for debt forgiveness.

The for-profit college industry has been in consumer advocates' crosshairs for years. Though students at for-profit schools constitute only 13 percent of total enrollment at higher education institutions, they represent nearly half of all loan defaults, according to the Education Department. The Obama administration has been trying to rein in for-profit schools and limit dodgy schools' access to federal financial aid.

Corinthian Colleges spawned a growing movement of so-called "debt strikers" who are refusing to make payments on their federal student loans in protest against the Education Department's treatment of the company and its current and former students. A group of roughly 100 former Corinthian students that calls itself the "Corinthian 100" has been publicly pressuring the department to cancel all debts owed by current and former Corinthian students because of the company's alleged deception related to its job placement and graduation rates.

"We have kept students at the heart of every decision we have made about Corinthian," Mitchell said last month.

Rep. Maxine Waters (D-Calif.) in March endorsed the debt strike. The former Corinthian students "have decided that this is predatory lending and they're not going to repay their debts," said Waters, the top Democrat on the House Financial Services Committee.

Duncan has said his department is considering their request. Full debt forgiveness for all current and former Corinthian students would likely cost the Education Department billions of dollars, especially because it's unlikely the department could get the company to cover losses from forgone federal student loan payments.

The federal student loan program has generated tens of billions of dollars in profit in recent years, thanks to the spread between high interest rates paid by student loan borrowers and the relatively low rates paid by the government in financing its annual budget deficits. The Congressional Budget Office forecasts that the program will continue to generate billions in annual profits in the coming decade.

Last month, the Education Department accused Corinthian's Heald campuses of misleading students and accreditation agencies about its graduates’ employment rates. The company showed a “blatant disregard” for the federal student loan program after the department said it found 947 false job placement rates dating back to at least 2010.

The Education Department levied a $29.7 million fine, a ban on enrolling new students, and a requirement that Heald prepare plans for its thousands of students to either graduate or transfer to a new school.

The department has yet to announce the results of its broader investigation into allegations the company's other schools lied about its job placement rates.

Also on HuffPost:

Iraq War: What Else Could America Have Spent $800 Billion On?

CONVERSATIONS