Education Department Steers Corinthian Colleges Students To Other Troubled For-Profits

04/28/2015 10:35 pm ET | Updated Apr 29, 2015

The U.S. Department of Education is telling thousands of students from now-shuttered for-profit schools owned by Corinthian Colleges Inc. to consider transferring to more than a dozen other for-profit schools also under investigation by federal or state authorities.

The department's suggestion follows Corinthian's abrupt shutdown on Monday, which left 16,000 students scrambling for options. In 31 spreadsheets on its website, the Education Department listed at least 13 for-profit schools whose corporate owners were under state or federal investigation for possibly misleading students among "viable transfer opportunities" to Corinthian's 30 locations and its online program.

One of the suggestions, ITT Educational Services, was sued in February 2014 by the federal Consumer Financial Protection Bureau for allegedly deceiving thousands of mostly low-income students with false job prospects and then forcing them into expensive private loans that the company expected a majority of them to default on. The department doesn't disclose the lawsuit on its list. Nor does it tell Corinthian students that 12 of the other for-profits it suggests are under state or federal investigation, according to announcements by state authorities or the companies' securities filings.

The Education Department has previously warned of the dangers associated with the for-profit college industry, such as questionable job prospects and high student debt loads. Education Secretary Arne Duncan has told lawmakers that his department would not allow for Corinthian to sell its schools to buyers already facing government scrutiny.

"To be clear, the department will not approve a sale to another entity if that entity is currently under state and/or federal investigation," Duncan wrote in an Aug. 4 letter to Sen. Elizabeth Warren (D-Mass.).

Sen. Dick Durbin (D-Ill.) sharply criticized the Education Department on Tuesday for its apparent policy reversal, asking during remarks on the Senate floor, "Why now will the department accept that outcome for these students?"

"Has the Department of Education learned nothing?" Durbin continued. "How in good faith can they tell these Corinthian students -- who just had their college disappear and are sitting on a pile of debt -- that these are viable transfer options?"

Denise Horn, an Education Department spokesman, said in a statement that at least 42 percent of Corinthian students are within six months of completing their programs. The department didn't respond to queries regarding Durbin's charge or address why it suggested embattled for-profits as transfer options.

Consumer advocates said the Education Department is trying to minimize losses that would result from forgiving Corinthian students' federal student loans, an option available to students whose colleges shut down.

Education Undersecretary Ted Mitchell, in an interview published Tuesday by the Los Angeles Times, said that while students were the department's first consideration, "We also think the taxpayer has made an investment in these students, and that the taxpayers' investment -- as well as the students' investment -- ought to be protected."

Getting Corinthian students to complete their studies at other schools, such as the for-profit colleges, would ensure that taxpayers aren't on the hook for the cost of mass loan cancellations.

Bridgepoint Education Inc., which owns Ashford University, is under investigation by at least four state attorneys general. Graham Holdings Co., which owns Kaplan University and Kaplan College, faces probes by at least three state prosecutors. At least two state attorneys general are investigating Apollo Education Group Inc., which owns University of Phoenix. And DeVry Education Group Inc., which owns Carrington College and DeVry University, faces investigations from at least three state prosecutors and the Federal Trade Commission.

Attorneys general of 20 states are investigating Career Education Corp., which owns International Academy of Design & Technology, Le Cordon Bleu College of Culinary Arts, and American InterContinental University. The U.S. Department of Justice and at least a dozen state prosecutors have pending investigations into Education Management Corp., the owner of Argosy University and the Art Institutes. And Illinois Attorney General Lisa Madigan has a pending 2012 lawsuit against Westwood College, alleging the school misled students about their future employment prospects while leaving them with mountains of debt.

The companies have either denied wrongdoing or said they are cooperating with the probes.

Corinthian announced Sunday it would shut its roughly 30 campuses, leaving 16,000 students across five states in the lurch after the company failed to either sell its schools or strike agreements with other colleges that would take in its students.

Federal and state authorities had sued the company for allegedly misleading potential students with false job placement and graduation rates. The Education Department, after limiting the company's access to federal student aid last summer over a paperwork dispute, struck a deal with Corinthian that freed up taxpayer cash in exchange for the company either selling all of its schools or shutting them down after all current students completed their programs.

Corinthian blamed federal and state regulators for its sudden closure. It denies wrongdoing.

Its students are now eligible for complete forgiveness of their federal student loans, unless they transfer their credits and complete their studies elsewhere. The Education Department said Monday that if all current Corinthian students requested debt forgiveness, it would face a $214 million bill. Had the company failed in September -- a few months before Corinthian announced an Education Department-brokered sale of more than half of its campuses to ECMC Group, one of the department's debt collectors -- the Education Department would've faced $639 million in potential losses.

The reduced liability is a consequence of what the Education Department called an "orderly wind-down" of Corinthian. "And efforts to help students find placement at other colleges will reduce that liability further," the department said.

Robyn Smith, a former California deputy attorney general who now works on student loan issues from Los Angeles for the National Consumer Law Center, said the department has long preferred minimizing losses from forgiving student debts over protecting students. The Education Department's emphasis on helping students complete their programs elsewhere -- rather than ensuring that students know about potential loan cancellations -- shows a lack of regard for the likelihood that many of them won't be able to finish their degrees or get jobs in their chosen fields, she said.

Smith said the Education Department "almost buries" the debt forgiveness option in its communications to students. Rep. Janice Hahn (D-Calif.) seemed to provide some evidence to support that view in a Tuesday letter to Duncan in which she alleged that his department had delayed notifying students in her district whose college had closed in 2014 about the loan cancellation option. "This cannot be allowed to happen again," Hahn said.

Other for-profit schools are eagerly trying to enroll former Corinthian students, Smith said.

"The Education Department prioritizes debt collection and making profits for the federal government over protecting students and providing relief for those harmed by for-profit schools," said Smith. "It's a problem."

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