Troubled for-profit college chain to sell its campuses (update)

The for-profit Corinthian Colleges, Inc., a chain of more than 90 schools that has been investigated repeatedly by government entities for issues including false advertising and high dropout rates, has reached agreement with the U.S. Education Department that requires it to sell or close its campuses while keeping school open for enrolled students, according to a statement released by the company.

 

Corinthian is the parent company of the Everest Institute, Everest College, WyoTech and Heald brands, which together receive $1.4 billion a year in federal student financial aid money. Last year, California Attorney General Kamala Harris filed a complaint against Corinthian and its subsidiaries for, according to this statement, “false and predatory advertising, intentional misrepresentations to students, securities fraud and unlawful use of military seals in advertisements.” It also says:

The complaint alleges that CCI intentionally targeted low-income, vulnerable Californians through deceptive and false advertisements and aggressive marketing campaigns that misrepresented job placement rates and school programs. CCI deployed these advertisements through persistent internet, telemarketing and television ad campaigns. The complaint further alleges that Corinthian executives knowingly misrepresented job placement rates to investors and accrediting agencies, which harmed students, investors and taxpayers.

Last month, Corinthian had said that it might have to close its schools because the federal government was limiting its access to federal financial aid for students, which accounts for 80 percent of the corporation’s revenue. The U.S. Department of Education said that Corinthian had failed to provide data addressing allegations that it was engaged in illegal marketing schemes and that it was cracking down. But an agreement was reached, according to a statement by the department, that would allow Corinthian to receive some $16 million in federal aid for students now enrolled while the corporation sold its programs.

According to InsideHigherEducation.com:

Many students would face difficulties in transferring to other institutions, experts said. For example, students at WyoTech’s campus in Laramie, Wyoming, might not have nearby options that match up with the institution’s certificate programs in automotive and other technology fields.

However, Corinthian’s current students also might not have to pay off their federal loans if the for-profit closes. The department typically discharges that debt. It also releases debt if a college goes bankrupt, but only if students can prove resulting “hardship.”

That means the government would not get all of its loan money back if Corinthian shuts down.

U.S. Undersecretary of Education Ted Mitchell said in a statement that the deal is all about helping the more than 70,000 students who are enrolled in Corinthian’s colleges.

Here’s the June 3 statement released by Corinthian:

Corinthian Colleges, Inc. (Nasdaq:COCO) announced today that it has signed an operating agreement with the U.S. Department of Education that establishes an orderly transition plan for its 107 campuses and online programs, and allows its students to complete their educational programs. ED has also provided for an immediate drawdown of Title IV (student financial aid) funds for currently enrolled students and a mechanism for continued funding while the agreement is in place.

The operating agreement is consistent with the Memorandum of Understanding announced by the Department and Corinthian on June 23, 2014. Under the terms of the agreement, Corinthian will put 85 of its U.S. schools up for sale, and “teach out” (gradually wind down) operations at 12 other schools. Corinthian agreed to work toward signing definitive agreements for campus sales in approximately six months. Separately, the Company will also begin a sales process for its Canadian schools.

ED will also appoint an independent compliance and business Monitor who will serve as the primary liaison between Corinthian and ED. Corinthian has agreed to suspend enrollment of new students until July 8, 2014, when ED and Corinthian plan to have the Monitor in place.

“We are pleased to have reached an agreement with ED that helps protect the interests of our students, employees and other stakeholders,” said Jack Massimino, Corinthian Chairman and Chief Executive Officer. “This agreement allows our students to continue their education and helps minimize the personal and financial issues that affect our 12,000 employees and their families. It also provides a blueprint for allowing most of our campuses to continue serving their students and communities under new ownership.”

Under the terms of the operating agreement:

  • The Monitor will have full access to Corinthian’s personnel and financial and operational information, and his or her duties will include monitoring of on-going Title IV disbursements, campus sales and teach-outs, company expenditures, and document production related to ED’s requests for information. ED expects to name the Monitor as soon as possible.
  • Corinthian will remain under ED’s Heightened Cash Monitoring 1 (HCM1) oversight, which includes a 21-day hold on federal Title IV financial aid funds. To prevent the disruption of school operations, ED will immediately allow Corinthian to draw funding advances against the 21-day hold, subject to conditions set forth in an amendment to the Memorandum of Understanding originally signed on June 22, 2014. After the Monitor is in place, he or she will review the Company’s on-going Title IV disbursements.
  • Corinthian has agreed that it will complete its response to a request by ED for documents related to 175,000 of its graduates by July 15.
  • Corinthian will provide written notices to all students regarding its plans for their respective campuses or online programs.

Corinthian expects to provide additional information regarding the operating agreement and the amendment to the Memorandum of Understanding in a Form 8-K filing with the Securities and Exchange Commission on Monday, July 7, 2014.

“I especially want to thank publicly our 12,000 employees who have risen to the occasion during the difficult circumstances of these past few weeks,” Massimino added. “They have worked around the clock to continue serving our students and to help make possible this orderly path forward.”

Background

On June 19, 2014, Corinthian reported that ED had implemented HCM 1 financial oversight and imposed a 21-day delay in Title IV funds disbursement. On June 22, 2014, Corinthian signed a Memorandum of Understanding with the Department, under which the Department would immediately provide Corinthian with the funding required to avert a sudden disruption of school operations.

In return, Corinthian agreed to develop a plan for the orderly transition of its campuses and an operating agreement that would govern its daily operations while the transition is under way. That plan and operating agreement are now complete.

 

 

Here’s the June 23rd statement from the Education Department:

The U.S. Department of Education is working with Corinthian Colleges Inc. on a plan to avoid an immediate closure of the career training program chain and prevent suddenly disrupting the education of 72,000 students and the jobs of 12,000 employees.

The Department and Corinthian signed a memorandum of understanding Sunday that requires the company to develop a plan to sell and teach-out programs across the country over the next six months, including hiring an independent monitor approved by the Department to oversee its finances and the sales process. In exchange, the Department has agreed to immediately release $16 million in federal student aid for students currently enrolled at Corinthian campuses. Corinthian is required to provide enrollment documentation to back up the funding request.

“Students and their interests have been at the heart of every decision the Department has made regarding Corinthian,” said U.S. Under Secretary of Education Ted Mitchell. “We will continue to closely monitor the teach-out or sale of Corinthian’s campuses to ensure that students are able to finish their education without interruption and that employees experience minimal disruption to their lives. The Department is committed to ensuring all students receive a quality education that leads to a well-paying job and a strong future.”

Corinthian is the parent company of the Everest Institute, Everest College, WyoTech and Heald brands, which together receive $1.4 billion in federal financial aid money for students annually. Under the agreement, Corinthian is required to put teach-out plans in place for all schools, including those for sale.

An independent monitor approved by the Department will review matters related to ongoing operations and will have fulltime access to Corinthian’s financial and operating records. In addition, Corinthian is permitted to continue enrolling new students but must reimburse any students who enroll in a campus found to be ineligible for federal student aid through the Department’s reviews and investigations.

The Department put Corinthian on heightened financial monitoring with a 21-day waiting period for federal funds on June 12 after Corinthian failed to comply with repeated requests to address ongoing concerns over the company’s practices, including falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.

As part of the agreement, heightened financial monitoring remains in effect and Corinthian has agreed to turn over data that the Department has been requesting for the last five months to address inconsistencies in the company’s job placement claims for graduates, as well as grade and attendance records. Inquiries by the Department and other federal agencies into Corinthian’s practices will continue.

Students can receive updated info at www.studentaid.gov/Corinthian.

Valerie Strauss covers education and runs The Answer Sheet blog.
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