Of America’s $1.3 trillion in student debt, about $260 billion was racked up by students at for-profit colleges: technical schools that offer expensive vocational programs and the prospect of high-paying jobs.
Some for-profit schools deliver the goods. But studies show that students at these schools take on more debt than other students – and have more trouble landing good jobs.
Meanwhile, loan defaults at for-profit schools have skyrocketed in recent years. So have complaints about poor academic quality, massive student turnover, even fraud.
Among the most problematic of the for-profits was Corinthian Colleges, a chain based in Southern California.
For a time, it was one of the world’s largest for-profit college chains – and one of the biggest moneymakers. At its height in 2010, it had more than 110,000 students, 105 campuses across the country and revenue of $1.7 billion, most of it in federal funds.
Known locally by such names as Everest College, Heald College and WyoTech, Corinthian Colleges Inc. offered hundreds of pricey trade school and technical degree programs, all of them advertised as boosting students’ career prospects. The company, traded on Nasdaq, had a profit margin of 14 percent in 2010. Major investors included The Goldman Sachs Group Inc., Wells Fargo & Co. and CalPERS, the California Public Employees’ Retirement System.
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But even during its period of greatest growth and biggest profits, Corinthian was buffeted by scrutiny of its business and educational practices.
The company was sued more than 100 times in federal court, often by aggrieved former students complaining of fraud. A U.S. Senate committee criticized the chain for high prices, high-pressure recruiting and faked job placement statistics.
Over the years, attorneys general in 21 states launched probes of Corinthian. Among the earliest was in California, where then-Attorney General Jerry Brown, now the governor, won an injunction in 2007 barring the company from using deceptive advertising to recruit students.
Six years later, Brown’s successor, Attorney General Kamala Harris, sued again, relying on internal company documents to accuse Corinthian of securities fraud, consumer fraud and violations of the earlier injunction.
Then, in 2014, the federal Consumer Financial Protection Bureau, which enforces consumer finance laws, took on Corinthian, accusing it in court of using illegal tactics to collect on high-interest private loans that the company marketed to its students.
With enrollment and revenue plummeting, and fearing a federal criminal probe, Corinthian shut down and filed for bankruptcy in 2015.
Even in a boom-and-bust business, it was a remarkable collapse – and, perhaps, a precursor of things to come. On Sept. 6, the 40,000-student ITT Technical Institute, another for-profit chain that was under pressure from federal regulators, abruptly went out of business.
Corinthian was founded in 1995 by five executives at National Education Centers, a struggling trade school in Irvine, California. According to a company history, the men engineered a leveraged buyout and renamed the chain Corinthian. The new name evoked the ancient Greek city and its ornate style of architecture.
Corinthian expanded quickly, buying other trade schools that were in financial trouble.
The new chain advertised training programs that would lead students to high-paying jobs in such fields as health care, criminal justice and information technology.
Its prices were “among the highest in the industry,” investigators for the U.S. Senate Health, Education, Labor and Pensions Committee wrote in 2012 after their probe of for-profit colleges.
At the Southern California campus of Corinthian’s Everest College, an associate of science degree in paralegal studies cost about $41,000; meanwhile, at Santa Ana College, a nearby public community college, the same program cost about $2,400, according to the Senate report. The Corinthian school charged $23,000 for a medical assistant program, while at nearby Orange Coast College, the cost was less than $3,700.
Few Corinthian students could afford those fees. Often, they were young and poor: A 2011 survey said 35 percent had household incomes of less than $10,000, records show.
As a result, most Corinthian students qualified for financial aid – typically a package that combined a federal grant with a hefty federal student loan and a high-interest private loan to make up the rest of the cost.
Because so many Corinthian students qualified for aid, most of the company’s revenue came from federal education funds. In 2010, for example, $1.4 billion of $1.7 billion in revenue came from federal taxpayers, Senate investigators wrote.
According to internal company documents obtained by California investigators, Corinthian targeted low-income people in its recruiting – focusing especially on single parents who were living near the federal poverty level and had poor job prospects.
These prospective students were described in internal company documents as “isolated” and “impatient” people with “low self-esteem,” who had “few people in their lives who care about them” and who were “stuck” and “unable to see and plan well for future.” They were thought to be especially susceptible to Corinthian’s sales pitch.
The company sought out these students through relentless internet and telemarketing campaigns and television ads on the Jerry Springer and Maury Povich tabloid talk shows.
Many Corinthian admissions officers were former telemarketers, records show. The company regarded them as salespeople, a training manual emphasized; interactions with prospective students were focused not on finding an educational program that fit a student’s needs, but on “closing the sale.”
When prospects expressed interest, recruiters moved aggressively to reel them in, with a barrage of boiler room-style phone calls and intense face-to-face contact.
If a prospect entered the admissions office at Corinthian’s Everest College in Melrose Park, Illinois, recruiters were trained to keep them there “until they had enrolled,” federal investigators said.
Often, recruiters used pressure tactics designed to exploit perceived psychological weaknesses: Parents would be told that a Corinthian education was “their best or only chance to help their children,” federal regulators said in their lawsuit.
The promise of career success was at the heart of the recruitment pitch. Recruiters marshaled impressive statistics to buttress their claims that a Corinthian education promised “a better career, a better life, a better way to get there,” as advertisements put it. But key assertions in the sales pitch just weren’t true, regulators said.
In millions of online and mobile ads in California, Corinthian offered job training for X-ray, dialysis, radiology and ultrasound technicians, according to the attorney general’s lawsuit; actually, none of the Corinthian schools in the state had such programs.
To lure veterans, the company sometimes decorated ads with the official seals of the U.S. armed forces – falsely implying that the schools were endorsed by the military, the attorney general found.
Meanwhile, the statistics undergirding Corinthian’s promise of future career success – numbers showing sky-high job placement rates – were padded or faked, regulators said in lawsuits.
Among the irregularities cited in lawsuits: At the Decatur, Georgia, campus of Everest College, school officials allegedly made up names of fictitious employers and reported that students had gone to work for them.
To boost placement rates at campuses in Georgia and Massachusetts, the company allegedly paid employers to give graduates temporary jobs, federal regulators said. Many campuses allegedly claimed a successful placement if a graduate got a job that lasted a single day.
Corinthian also was accused of pumping up placement statistics by falsely claiming that unemployed students were in jail and thus unavailable for work.
The placement rates were of crucial importance to Corinthian – and not just for recruiting. The company’s stock price – and its access to the billions in federal student aid – depended in part on maintaining high job placement rates, records show.
Corinthian’s top executives were well aware that its job placement statistics were faked, regulators said.
In 2011, then-CEO Jack Massimino emailed a slideshow presentation to his executive team that stated, “We have a placement compliance problem now,” regarding job placements.
But in a filing the following year with the U.S. Securities and Exchange Commission, Corinthian claimed that 68.1 percent of its graduates were placed “in a job for which they were trained” – about the same rate it had been claiming for years.
Many students who enrolled at Corinthian concluded they had been deceived, according to lawsuits. Some complained that their courses didn’t seem focused on relevant training or weren’t rigorous. Many others said they experienced crushing disappointment when they went job hunting: Some graduates said they encountered prospective employers who declared they never would hire another Corinthian graduate because they were so poorly trained.
And so, even as tens of thousands of students enrolled in Corinthian each year, thousands more quit.
Dropout rates in some Corinthian programs exceeded 60 percent per year, federal regulators said in their lawsuit.
To continue to expand the student body and “meet Wall Street investor expectations,” Corinthian was forced to “enroll an enormous number of new students,” regulators said.
For example, Corinthian began 2010 with 86,000 students and ended the year with 110,000, an increase of 24,000. But along the way, 113,000 students left. To achieve its 28 percent growth rate, the company was forced to recruit and enroll nearly 138,000 new students – more than the entire student body at the beginning of the year.
For years, Corinthian’s bottom line butted up against the restrictions of the U.S. Department of Education’s so-called 90/10 rule. It stipulates that colleges can rely on federal student aid programs for no more than 90 percent of their revenue.
The rest of the money had to come from someplace else. At for-profit colleges, the difference was made up from cash payments, veterans’ benefits and, especially, the proceeds of private loans.
But after the subprime mortgage crisis and ensuing credit squeeze in 2008, many private lenders stopped making student loans, especially to borrowers who had bad credit.
That threatened Corinthian’s financial structure, federal regulators said in their lawsuit. Every dollar in private financing obtained by a Corinthian student “allowed Corinthian to receive up to an additional nine dollars” in federal aid, they noted.
To make up for that lost private financing, Corinthian marketed what it called “Genesis” loans to its students – private loans with interest rates topping 14 percent, records show. The company claimed it was merely administering loans made by third parties.
Actually, Corinthian had a financial interest in the loans, regulators said. At first, Corinthian bought all the Genesis loans from issuing banks soon after origination. Later, it bought all the Genesis loans that fell into default.
To pump up demand for the private loans, the company imposed double-digit tuition increases at some colleges, regulators charged.
Between 2011 and 2014, students borrowed $568 million in Genesis loans, Senate investigators found. Students were required to begin monthly payments on the loans while still in school, and Corinthian moved aggressively to collect, regulators claimed.
Staff members got bonuses for collecting past-due loans. Collectors pressured students who were slow to pay by cutting off their computer access, pulling them out of class and banning them from campus. Corinthian had little regard for why a student fell behind, the California attorney general said.
In an email exchange obtained by California investigators, two employees at an Everest College campus in Gardena discussed how to pressure a student for loan payments while she was on maternity leave. In Torrance, Everest employees discussed the challenges of collecting loan payments from a student who had no place to live.
“Student is homeless … how is she gonna pay genesis and stay in school?” one emailed.
“That’s what im saying?!?” the other replied. “If she doesn’t even have a bathroom to take a shower.”
The default rate on the Genesis loans topped 60 percent, regulators said.
By 2014, the Genesis defaults, the investigations and a barrage of negative publicity had put Corinthian into a financial tailspin. Enrollment dropped below 75,000. The company reported losses of more than $90 million. The stock price plummeted.
In June 2014, concerned that the chain was faking job placement and student attendance data, the U.S. Department of Education put a 21-day hold on releasing federal education aid funds to Corinthian. That reduced revenue to a trickle. Two weeks later, the company agreed to sell off its campuses and phase out of business.
For $24 million, Corinthian sold 58 campuses to a nonprofit set up by ECMC Group, which also owns a major student loan collection agency known for aggressive tactics. The other campuses were closed. The company also sold its Genesis loan portfolio – 170,000 loans with a face value of $505 million – for $19 million, the government said.
Then, in May 2015, Corinthian filed for bankruptcy, reporting less than $20 million in assets and $143 million in debt. Months after that, the Consumer Financial Protection Bureau won a $500 million judgment in its lawsuit against Corinthian.
Earlier this year, California’s attorney general won a $1.1 billion judgment against the defunct company, including an $820 million restitution award for thousands of students who had claimed fraud.
While there was no prospect of collecting, Harris said the case might help students seeking relief from student loans.
“My office will continue to do everything in our power to help these vulnerable students obtain all available relief,” she said in a statement.
In June, the U.S. Department of Education forgave student loans held by about 11,000 former Corinthian students, most of them in California. The cost to taxpayers: about $171 million.