It’s been almost a year since student debt collector ECMC Group purchased dozens of campuses from Corinthian Colleges, the bankrupt company that ran Everest, Heald College and WyoTech schools. The new owner had lofty ambitions of turning the for-profit colleges into premier nonprofit schools, so has it?
A series of new reports from an independent monitor overseeing the transition show it has been a slow-going process of cleaning up the mess left behind by Corinthian. While the Department of Education is hailing the progress made by ECMC, critics remain wary of the new owner and the department’s assurance that the $24 million sale was really in the best interest of students.
When ECMC bought more than 50 Corinthian campuses in November and created Zenith Education Group to run them, the company agreed to select an independent monitor with the department’s approval. The department wanted to make sure the new owner steered clear of the mistakes made by Corinthian, which lost access to federal funds for lying to the government about its graduation and job placement rates.
ECMC chose Hogan Marren Babbo & Rose, a Chicago-based law firm headed by the department’s former general counsel, Charlie P. Rose. The monitor visited campuses, listened in on employees’ phone calls with students and documented the headway ECMC made in living up to its agreement with the department.
The results of the first five months of reviews are mixed. Rose, who led the process, said in the reports that ECMC lived up to its promise to reduce tuition by 20 percent and issue up to $10,000 a year in grants to needy students. The monitor also said the company presented students “fair and balanced” information about its move to cap enrollment or phase out programs with poor completion and job placement rates. Students in those programs had the choice of continuing the program to completion, getting a refund of educational expenses or getting a voucher for use in another program.
On the other hand, the monitor found company employees inaccurately describing the financial aid process and pressuring prospective students to enroll, the same sorts of tactics Corinthian was known to employ. Rose and his team also found errors in the way the company calculated completion rates on its Web site but said the firm has since corrected the problem.
“We’ve embarked upon a transformation of these schools,” said ECMC chief executive David Hawn. “It’s a journey, certainly not a sprint. We’ve made a number of changes and the reports reflect positive movement, but along the way there are mostly very isolated issues that we’re moving as quickly and aggressively to correct.”
Education Undersecretary Ted Mitchell said in a blog post announcing the reports he is “pleased with the progress Zenith has made in the first few months of operating the schools.
“Zenith has, in fact, followed through with its pledges of eliminating its poorest performing programs, reducing tuition by 20 percent, implementing its school choice and refund programs, and beginning the process of right-sizing its enrollment,” he wrote.
Mitchell and the department have drawn a lot of criticism for blessing the sale of underperforming schools to a company with no experience in teaching. Lawmakers and student advocates have argued that the schools should have closed, which would have made it easier for borrowers to discharge their federal loans.
Yet Mitchell insisted at the time that shutting down the schools would have been a detriment to students who were close to completing their program. He expressed confidence in ECMC’s plan to turn around the campuses and promised to monitor the process.
Critics are questioning the department’s approval of Rose to oversee the transition, given his ties to the agency and its interest in seeing the transition succeed. The attorney served in the department from 2009 to 2011 but was instrumental in the creation of the gainful employment rule to limit how much debt students amass in career-training programs. Still, his current law firm does represent for-profit colleges. But some say having Rose serve as monitor isn’t unusual.
“While it’s not uncommon for former government officials to be tapped as a monitor, agencies always have to make sure monitors aren’t hunting for future business with the company,” said Rohit Chopra, senior fellow at the Center for American Progress. “When independent monitors have a truly arms-length relationship with both the company and the agency, their findings tend to carry more weight.”
Education spokeswoman Denise Horn bristled at the suggestion that Rose and his team were anything but impartial.
“Charlie Rose has a deep level of understanding of the department’s regulatory framework, and brings invaluable experience as the independent monitor of Zenith,” she said in an e-mail. “We are confident in his ability to take this role seriously and will continue to work with Mr. Rose and his firm to make sure students’ interests are protected.”
David Halperin, an attorney who has been critical of the for-profit industry, said ECMC has not done enough to distinguish itself from Corinthian. The company retained top managers from the defunct firm, including Rick Simpson, who ran academic programs, and Rob Kenyon, the chief accounting officer. Halperin said the new enrollment agreement resembles Corinthian’s and bars students from seeking a jury trial in the event of a lawsuit — the kind of clause that could be found in for-profit college agreement.
“Given all of the concerns raised by Zenith’s conduct so far, the report does not resolve the concerns that Zenith is going to act like a model nonprofit as opposed to a for-profit,” Halperin said.
ECMC’s Hawn said the company eliminated over 2,500 positions and brought in new leadership, but kept a number of “outstanding people” from Corinthian who “share the same passion and commitment to producing better student outcomes.”
He stressed that ECMC will not stand in the way of any student who wants to pursue litigation, has ended mandatory arbitration and set up internal dispute resolution resolve problems quickly.
Six months after taking over the campuses, ECMC issued its own progress report heralding changes at the schools. The company capped enrollment or phased out 125 underperforming programs at 35 campuses. Of the 11,000 students affected by the changes, 67 percent stayed the course, 10 percent took the voucher and 16 percent asked for a full refund at a total cost of $29 million.
Through the company’s new grant program, roughly 2,800 students have been awarded $7.4 million. The grants are meant to replace a notorious loan program, called Genesis, that landed Corinthian in hot water with the Consumer Financial Protection Bureau last September. The agency accused Corinthian of setting tuition and fees for bachelor’s degrees at $60,000 to $75,000 to force students to borrow from the program, receiving a slice of the lender’s fees.
Hawn said Corinthian “had really gone through a lot of turmoil and it showed in most facets of the organization. We’ve moved away from so much focus on marketing and admissions, putting more of our attention on improving program offering, updating curricula, credentials of our instructors.”
Before filing for bankruptcy in May, Corinthian was facing nearly a dozen state and federal lawsuits for misrepresenting the rates at which graduates land jobs and steering students into predatory loans. The allegations tarnished the schools’ reputation and presented a formidable challenge for anyone stepping in behind the for-profit giant.
Chopra, a former student loan ombudsman at the CFPB, said that for ECMC, “The ultimate test will be whether newly recruited students end up climbing the economic ladder or buried in debt with little chance of getting ahead.”
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