A Wells Fargo stock analyst, who boosts for-profit colleges while frequently overlooking their abuses, lays the blame for one particularly predatory college's high failure rate at the feet of low-income students, or, as he calls them, "subprime" students.
Summarizing a presentation by Corinthian Colleges, which has one of the worst records of serving students of any for-profit college, analyst Trace Urdan wrote that "essentially all of Corinthian's borrowers can be characterized as sub-prime." Urdan's report finds that Corinthian "remains viable and potentially appealing in the long term" for investors, and blames federal rules for the company's struggles.
After I reported Urdan's statement on Twitter, we engaged in a discussion (see below) in which Urdan appeared to blame Corinthian students for ending up with overwhelming debt.
- Corinthian is under investigation by the federal Consumer Financial Protection Bureau and at least six state Attorneys General: California, Florida, Illinois, Massachusetts, New York, and Oregon.
- California's Attorney General found that Corinthian falsified students' employment records to inflate the company's job placement rate for graduates. In 2008, the company paid $6.6 million to settle the investigation out-of-court. An investigation by WFAA-TV in Dallas found that Corinthian falsified employment records of Texas students.
- 66.5 percent of Corinthian associate degree students drop out, as do 59.2 percent of its bachelor's degree students.
- An associate degree in business at Corinthian's Everest College in Florida costs$46,792, while the same program at Miami Dade Community College costs $6,453. A bachelor of science in business at Everest in Florida costs $81,680; the same degree from the University of Florida costs $24,458.
- Three-quarters of students who attended Corinthian-owned schools were unable to pay down any principal on their student debt in 2009, according to data from the Department of Education. Thirty-six percent of Corinthian students default on their loans within three years - the highest rate of all publicly traded for-profit education companies. Worse, Corinthian spent $10 million in 2010 to "manage" student defaults- repeatedly telephoning students to convince them to enter interest-bearing loan forbearance or deferment -- in order to be able to report lower default rates to the Department of Education.
- Last year, the Education Department released information about which career training programs and for-profit colleges are passing -- and which are flunking -- its new "gainful employment" rule. The Obama Administration watered down this regulation last year after a massive lobbying campaign by the for-profit college industry, and the rule imposes only the most minimal standards, measuring how many students are paying back their loans and how much debt they have compared to their income. Corinthian's Everest College and Universities performed the absolute worst of all schools -- 43 out of 143 programs at those schools failed each of the three gainful employment tests.
- In 2009, Corinthian received at least 89.4 percent of its revenue from federal taxpayer dollars, with Pell grants, student loans, G.I. Bill funding and other aid totaling $1.4 billion.
- Because federal aid still doesn't cover all the cost of attending Corinthian, in 2009 and 2010 the company made private loans totaling $240 million to its students at an average interest rate of 13 to 15 percent, with some students paying as much as 18 percent. According to its own internal analysis, Corinthian estimated that 55 percent of students with these loans will default.
- Corinthian spent between $5 and $10 million on an advertising campaign to block federal accountability standards.
Blaming the students that way is remarkable, given the evidence that Corinthian has engaged in fraudulent conduct. It's like saying about a restaurant that serves poison-laced food, "Diners make of it what they will." If the majority of students drop out of Corinthian schools, and the majority of students can't pay back their loans, the school is clearly doing things wrong -- charging too much, offering poor quality programs, failing to deliver on promises to train people for productive careers.
But Urdan keeps working to blame others besides the for-profit schools. At a Department of Education hearing last week in San Francisco, Urdan criticized the Department for rulemaking processes that he said harmed investors in for-profit colleges, according to people who attended.
This week an LA Times columnist covered a story that I wrote about in April -- the dismaying decisions by former Defense Secretary Leon Panetta and National Urban League President Marc Morial to join the Corinthian Colleges board of directors. The Times article drew a wholly unresponsive PR response from Corinthian president Jack Massimino.
Here's the Twitter exchange:
David Halperin @DavidHalperinDC
#4Profit colleges can accurately be called subprime.Wells Fargo's @Trace_Urdan says its the students who are subprime http://www.republicreport.org/wp-content/uploads/2013/06/Wells_COCO_institutional-loans-528-2013.pdf ...
Trace Urdan @Trace_Urdan
@DavidHalperinDC That #4profit sector serves at risk students is no secret. Should those w/low credit scores not have access 2 education?
David Halperin @DavidHalperinDC
@Trace_Urdan They should have access to quality education. Govt shouldn't pay to send them to schools with high prices and poor records.
David Halperin @DavidHalperinDC
@Trace_Urdan ... schools that ruin lives, like Corinthian, which had the worst GE record of all http://www.republicreport.org/2013/panetta-morial/ ...
Trace Urdan @Trace_Urdan
@DavidHalperinDC #4profit non-degree schools like Everest have better completion, placement than community colleges, but no taxpayer subsidy
David Halperin @DavidHalperinDC
@Trace_Urdan Seriously?Corinthian gets about 89% of revenues through US financial aid.Has highest default rate. High prices=>ruined lives.
Trace Urdan @Trace_Urdan
@DavidHalperinDC Prices driven by 90/10. School offers quality instruction and opportunity. Students make of it what they will.
David Halperin @DavidHalperinDC
@Trace_Urdan Wow.Laissez faire for students,but guaranteed fed $ for Corinthian,which falsified job placement reports http://www.huffingtonpost.com/davidhalperin/leon-panetta-and-marc-mor_b_3187983.html ...
Trace Urdan @Trace_Urdan
@DavidHalperinDC Students should be well informed about programs but also about who they are borrowing from and consequences of default.
David Halperin @DavidHalperinDC
@Trace_Urdan Agree! 3/4 of Corinthian students can't pay down their loans. Can't imagine that's what those students wanted.
Trace Urdan@Trace_Urdan
@DavidHalperinDC When subprime borrowers default on mortgages, do you blame realtor, lender, or buyer?
David Halperin @DavidHalperinDC9m
@Trace_Urdan If realtor or lender was under investigation by 6 state AGs & CFPB & paid $6M re claims it falsified records, I'd start there.
This article also appears on Republic Report.