A year after the Department of Education (ED) prevented a fraud-riddled for-profit college company’s victims from easily escaping their student loan debts, the new corporate parent that federal officials enlisted to take over for the defunct firm is still deceiving would-be students.
For decades, Corinthian Colleges, Inc. operated more than a hundred schools and online programs operating under brand names like Everest College, Wyotech, and Heald. The schools marketed themselves as rapid ladders to personal success, masking the reality that their offerings were far more expensive than equivalent degrees from community colleges — and that a for-profit college degree is almost worthless in job interviews.
Though the company’s habit of lying to recruits had attracted the attention of California’s Attorney General as far back as 2004, Corinthian’s scam didn’t fully break down until the spring of 2014. After reporters and prosecutors helped uncover false claims about job placement rates in the company’s marketing materials, high-pressure tactics in recruiting phone calls, abusive lending practices, and a penchant for out-and-out bribing local employers to create make-work jobs for their graduates, federal officials finally stepped in.
The long-awaited enforcement action crippled Corinthian. The company announced it would shutter its campuses, sending the same ED officials that had restricted its access to taxpayer-backed loan money into a flurry of activity to try to save the firm.
Activists argued for letting Corinthian go out of business instead, noting that students whose campuses closed would have their loans wiped out and be free once again to use loan dollars at a more reputable school for a higher-value education. But ED officials, believing it would be better for students to finish what they started, brokered a deal to sell roughly half of Corinthian’s holdings to a new company that would take them non-profit — and keep most of their students from receiving loan discharges.
But a year after that controversial deal closed, there’s ample evidence that the transition hasn’t worked out how ED the hoped — and that those who argued shuttering Corinthian entirely would be better for the students it had duped have a stronger case than ever.
The schools’ new owner has been replicating elements of Corinthian’s deceitful business model since taking over at the behest of the feds, according to an Associated Press investigation.
Same As The Old Boss?
The ED-brokered deal put a new company called Zenith Education Group in charge of the Corinthian campuses that were not forced to close. Zenith has left the Everest and Wyotech brand names on the programs, adding to the confusion students and observers face in making sense of the new firm’s behavior.
Zenith is only involved at all because the ED decided it should be. The department came to that decision in part because it believed that the new operators would make a clean break with Corinthian’s notoriously abusive practices, which included lying about job placement rates of its graduates and misleading students about the consequences of various financial aid arrangements.
But the break hasn’t been clean.
Corinthian, for example, was notorious for marketing its schools on daytime television with upbeat, flashy ads that made a secure economic future seem like a certainty for anyone who completed a degree with the firm. Optimistic ads aren’t a crime, of course, but Corinthian’s decision to falsify actual statistical claims about graduate job placement rates on official recruiting materials helped doom the company.
Zenith kept those same ads on the air in 2015. Not re-cut versions of the same idea; literally the same pieces of advertising. The company spent $11.5 million on television ads, mostly during daytime talk shows like Maury Povich, and mostly to air recycled Everest College spots. One such zombie advert featured paid actors pretending to be Everest graduates who tell viewers the program will be cheaper than community college, according to the Associated Press investigation.
Once someone got interested in the company or got enrolled in one of its schools, Corinthian was also notorious for using pressure tactics. Prospective students were routinely rushed through the application process, recruiters told Consumerist in 2014, with both customer and salesperson breezing past the fine print of key legal documents. Admissions staff were discouraged from keeping in touch after they’d gotten someone signed up and the company had begun milking student loan payments from the government in their name. Enrolled students who ran into trouble typically got disinformation from the staffers whose help they sought.
In Zenith’s hands, customer conversations with staff on the phone are often still misleading. One of every nine conversations with a current or prospective student got flagged as potentially containing misinformation in November, the AP notes. To Zenith’s supporters, that number is likely an indication of progress made: An 11 percent flag rate, produced by a brand-new system of proactively monitoring recruiters and counselors to curb misinformation and innocent errors alike.
Zenith officials directed ThinkProgress to a written statement from president Dave Hawn, released Monday. Hawn notes that the company has dished out more than $100 million in assistance to students, most from an across-the-board tuition cut of 20 percent that Zenith agreed to as a condition of the sale.
Even after that price-chopping, a Zenith education is far more expensive than the equivalent offerings at public and community colleges. That reality, combined with the news that Zenith has struggled to shrug off some of Corinthian’s signature marketing and recruiting abuses, casts shadows on the optimism federal officials expressed at the time of the sale.
The similarities in pre- and post-sale operation of these schools indicates “the business model…hasn’t fundamentally changed,” the wire service wrote.
Hawn objects strenuously to that view. “In fact, it has changed – fundamentally,” he said. The Monday release stresses the ongoing change of culture from Corinthian’s for-profit outlook to a student-centered, non-profit model.
The company has also stopped using Corinthian’s TV ads, he said, though he did not specify when that change occurred.
“In admissions, we’ve completed field-testing and rolled out new assessment and financial aid approaches to help ensure prospective students’ career interests match our program offerings and that they understand the basic academic skills and financial investment it will take to successfully complete their programs before they enroll,” he said. Hawn also noted the company has shuttered some of Corinthian’s worst-performing degree programs, including a criminal justice certificate that was very popular but notoriously useless for actually landing a job.
Zenith is the official name of the company that took over Corinthian’s operation, but the real force behind the transaction is a venerable private firm called Education Credit Management Corp (ECMC).
ECMC had never operated an educational outfit prior to agreeing to a deal facilitated by federal education officials to acquire, rename, and run the schools under the Zenith non-profit. But for ED officials, it’s a familiar face.
Founded in 1994, ECMC has worked hand-in-glove with the federal higher-education bureaucracy for more than two decades to make it all but impossible for struggling borrowers to escape student loan debts in bankruptcy court. The firm earned a reputation for ruthlessness, and its court filings have narrowed the definition of a key bankruptcy term such that judges now have almost no discretion to let destitute people out of student loan obligations.
For all of ECMC’s practice in the collections business, the company is brand new to the business of teaching students. ED’s decision to shepherd Corinthian into such novice arms in late 2014 was criticized at the time as a superficial rebranding of a fraudulent enterprise. Critics argued Corinthian’s former students would be better off if their schools simply shut down, allowing them to void their student loan debts almost automatically.
The department insisted those students would be better served finishing what they’d begun and moving into the job market than getting a fresh start without tens of thousands of dollars in debts. “It’s cold comfort to know that you can apply for a loan discharge” if your school closes, ED Undersecretary Ted Mitchell told ThinkProgress at the time, “because the reality of it is, you’ve gotta start over.”
He also noted Zenith would offer refunds to some students. As of Zenith’s six-month progress report last August, fewer than 2,000 of the nearly 28,000 Americans caught up in the ED-backed deal had taken that off-ramp – and more than 16,000 were never offered the option. Several students who disagreed with Mitchell’s view in 2014 launched a debt strike that helped force ED into negotiations regarding debt relief for those Corinthian students it hadn’t already shepherded into Zenith’s arms.
Mitchell was unavailable Monday to discuss how the AP’s findings might have changed his view of what’s best for defrauded Corinthian students. But ED Press Secretary Dorie Nolt defended Zenith in an email.
“We’ve always known it will take time to turn these schools around, and we are seeing some steps in the right direction. But we also know that this is going to require continued oversight and the ultimate proof will come in the form of outcomes for students,” Nolt wrote. “We want to see real numbers – are they graduating students with meaningful degrees who can repay their debt?” If Zenith can’t deliver the goods, she wrote, “we will not hesitate to act.”
Billions More On The Line
For the tens of thousands of students not left at Zenith’s mercy -- either because they already graduated with a useless Corinthian degree or because their campuses were not part of the deal Mitchell helped broker -- the fight to lift billions of dollars in student loan debts tied to Corinthian coursework is ongoing.
The debt strikers succeeded in reviving a long-dormant provision of federal student loan law that says borrowers may seek to have their debts canceled if they can prove their school cheated them. Corinthian’s habitual cheating is a matter of government record; ED’s own investigation into the company’s fraudulent practices forced the bankruptcy and subsequent ECMC sale and Zenith rebranding effort.
But so far, in months of negotiations over exactly how this “borrower’s defense to repayment” process will work now that thousands are seeking its protection, the ED has worked to minimize the number of students who will be able to get out from under. The agency’s negotiating posture prompted nearly three dozen Senate Democrats to send a letter to President Obama last Wednesday urging him to reverse course in the talks.
That pressure may have helped prompt action. On Friday, ED officials announced they had softened their stance on the borrower’s defense proposal in ways that reflect the concerns of the students and the senators. The department’s negotiators will meet with students and higher education employees this week for the final round of talks about shaping the rules.
The Friday announcement also noted that the agency will work to bar schools from tucking forced arbitration clauses into their contracts with students.
Zenith itself uses such clauses, albeit in ways that suggest marginal progress since the ED-brokered sale in 2014. The company’s defenders note that it only bars students from participating in class-action lawsuits, where Corinthian had prohibited even individual lawsuits.