Federal Crackdown On For-Profit Colleges Claims Its First Victory

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"Federal Crackdown On For-Profit Colleges Claims Its First Victory"

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A for-profit college company with a track record of dubious marketing practices is now set to narrowly avoid closing its doors forever after agreeing to the government’s terms for continued financing. The agreement could bring changes in how Corinthian Colleges and other for-profit colleges that rely on taxpayer money do business.

After years of lawsuits and investigations into how the company marketed its schools to students, the Department of Education (DOE) restricted the Corinthian’s access to federal funds earlier this year, instituting a three-week waiting period before federal payments could be distributed to Corinthian businesses. Corinthian, which gets $4 out of every $5 from federal education financing programs, appeared to be heading into a death spiral late last week when it announced that the restrictions had left it on the edge of insolvency.

Under Monday’s agreement, however, the company will reportedly get the bridge funding it needs long enough to act on several DOE requests, including closing some of its schools and bringing in an independent auditor for its remaining operations. The DOE is weighing whether or not to reauthorize several Corinthian-owned schools for participation in the federal financial aid system, according to the Associated Press. The company will attempt to sell off significant parts of its 107-campus network.

The stricter DOE financing policy that forced Corinthian to bow to government demands was put in place after the company failed to cooperate fully with federal inquiries into its schools. Some of those inquiries involved Everest College, one of three separate for-profit higher education brands owned by Corinthian. Everest employees in six states told the Huffington Post that they were encouraged to falsify data on graduate job placement. The California attorney general has sued Everest for marketing fraud, arguing that the company mislead prospective students about how its graduates fared in the job market.

Worse, Everest officials paid nearby companies to hire their graduates for just long enough to make the school’s statistics look better, then let them go. One Everest campus in Georgia paid companies $2,000 a head to keep Everest graduates on staff for 30 days. One alum named Eric Parms racked up about $17,000 in loan debt to earn a certification from its HVAC (heating, ventilation, and air conditioning) program, only to get placed into a temporary make-work job at a local contractor that was taking money from Everest to turn people like Parms into positive statistics on the school’s marketing materials.

The same money that Parms and peers now owe to student loan companies and the government went first to Corinthian as revenue. The company gets $1.4 billion a year in federal financial aid money, according to the Wall Street Journal.

While details of the ultimate resolution of Corinthian’s near demise remain in flux, the government’s stark actions against a company that was allegedly fleecing both students and the federal financial aid system should send a signal to the rest of the for-profit college industry. The graduate job attainment figures that allegedly drove Corinthian to take up fraudulent tactics are going to be a key measure of whether or not companies can continue to do business with the government going forward. For-profit schools generally fair worse on those metrics than traditional institutions, and one market analysis late last year suggested that one in five for-profit schools will fail to meet new requirements.

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