The Washington PostDemocracy Dies in Darkness

For-profit Corinthian Colleges files for bankruptcy

Students wait outside Everest College, Tuesday, April, 28, 2015 in Industry, Calif., hoping to get their transcriptions and information on loan forgiveness and transferring credits to other schools. Corinthian Colleges filed for bankruptcy protection. (AP Photo/Christine Armario)

Corinthian Colleges, once one of the country’s largest career college chains, on Monday filed for chapter 11 bankruptcy protection, a week after shutting down its remaining 28 campuses.

The move caps the year-long collapse of a company once hailed on Wall Street for its lucrative model of offering degrees to low-income students who borrowed heavily from the government to pay their tuition. But allegations that Corinthian lied about the success of its programs and trapped students in predatory loans ultimately led to a series of government lawsuits and loss of its access to federal funding.

Corinthian has spent much of the past year winding down its operations since the Education Department cut off its access to federal aid amid allegations of falsified job placement records and graduation rates. The department gave the for-profit college $16 million in federal funds to keep it afloat long enough to sell or close its 107 campuses across the country.

In November, ECMC Group, which runs one of the biggest debt collectors used by the Education Department, paid $24 million for more than half of Corinthian’s campuses. But Corinthian said it was having a hard time offloading the remaining schools amid mounting government lawsuits and a federal fine.

Just weeks ago, the Education Department slapped Corinthian with a $30 million fine for misrepresenting the rates at which graduates land jobs, a charge the school denies. The department found 947 cases of false placement rates given to students and accreditors. In some instances, Heald Colleges paid temp agencies to hire its graduates to work as few as two days, and counted those students as having found jobs.

Corinthian is being sued by state attorneys general in California, Wisconsin and Massachusetts for deceptive marketing. And the company is embroiled in a $500 million lawsuit with the Consumer Financial Protection Bureau, which is accusing the company of steering students into high-cost loans.

Troubles at Corinthian surfaced almost five years ago in a Government Accountability Office report that identified the company as one of 15 for-profit colleges where recruiters encouraged students to commit fraud on financial aid applications.

Yet the government kept funneling $1.4 billion in federal aid to Corinthian every year. The company got 80 percent of its annual revenue from the government until the Education Department turned off the funding last summer.

Consumer groups and lawmakers had hoped the chain of schools would close to give students a clear shot of having their student loans forgiven. But the sale to ECMC muddied the waters.

Current and former students of the schools purchased by ECMC have had to file an appeal with the Education Department for loan forgiveness that demands a high bar of proof. They need to prove that Corinthian broke state law in a way the hindered their education. That may be easier in states where attorneys generals are suing Corinthian, but elsewhere, it could be a challenge.

“The department found enough evidence of fraud to impose the $30 million fine, yet it demands individual proof of fraud on the victims,” said Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities. “It’s hard to take the department seriously when you see that this kind of fraud festered under its nose and ran its entire course.”

The Education Department has defended its actions and stands behind the steps it has taken to force Corinthian to wind down.

“Corinthian’s bankruptcy filing follows aggressive enforcement actions taken by the department to protect students; bringing accountability and transparency to the entire for-profit college sector remains a top priority for us,” said Denise Horn, a spokeswoman for the agency. “The department remains committed to protecting students and ensuring that those who have been hurt by fraud –including at Corinthian — receive the debt relief they are entitled to.”

In its bankruptcy filing, Corinthian said it has $143 million in debt and less than $20 million in assets.

Founded in 1995, Corinthian ran Everest Institute, WyoTech and Heald Colleges throughout the United States and Canada. At its peak in 2013, the company served 81,284 students and had more than 10,000 employees.

The collapse of Corinthian arrives amid turmoil in the for-profit education industry. Career colleges are broadly facing flat enrollment and regulatory scrutiny. Late last year, the Education Department unveiled rules aimed at limiting the amount of debt students amass in career-training programs. A trade group representing 1,400 for-profit college has filed a lawsuit against the government over the rule.