U.S. Education Department helps bail out for-profit college that lured students into bad loans

Talk about trying to fly under the radar: announcing a deal during Thanksgiving week is a sure sign that someone—in this case the U.S. Department of Education—doesn’t want you to notice.

In the deal announced on November 20, a student debt collection company, ECMC Group, will buy 56 college campuses from Corinthian Colleges Inc., a for-profit university. Corinthian runs these campuses in 17 states under the names Everest College, Everest Institute, and Wyotech.

Corinthian, until recently a high-flying for-profit university, has flourished thanks to federal largesse: its students received Pell grants totalling over $400 million in 2012-2013, and it receives about $1.4 billion a year in federal aid.

All of this money supports a for-profit university (one of the Yugos of higher education) whose students have egregiously high rates of loan defaults and who often fail to complete their programs. These failure rates are a direct consequence of Corinthian’s strategy of targeting the poor and disadvantaged with “promises of jobs and good wages that would support their families.”

Just a few months ago, the Consumer Financial Protection Bureau (CFPB) sued Corinthian Colleges for its “predatory lending scheme,” claiming that 

“Corinthian lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.”

After the CFPB announcement, the U.S. Education Department began restricting federal student aid to Corinthian schools, which Corinthian said would “put it at risk of failure.”  

Now, in a move that seems to undermine the actions of the CFPB, the U.S. Department of Education has brokered a deal to keep these schools in business, to be run by the Zenith Education Group, a subsidiary of ECMC Group, Inc. This action comes less than 3 months after the Education Department sent a letter to Corinthian denying its recertification application for federal student loans because 

“Everest Decatur [one of Corinthian’s colleges] created false placements and misrepresented Everest Decatur’s job placement rates to its accreditor in an attempt to maintain its eligibility for Title IV, HEA program funds.” 

About the takeover by student loan company ECMC, the New America Foundation’s Ben Miller, an expert on education policy, commented:

“You're talking about creating one of the 10 biggest nonprofit colleges on the fly with no educational expertise in place and doing so with an infrastructure of questionable quality. This type of transformation is unprecedented. Look at the biggest charter networks like KIPP. They started with one school and it took them years/decades to get bigger. So turning over something right away to operate at scale with such a vulnerable population and so-so educational offerings is an incredibly tough path to head down.”

Even if ECMC can run this operation, Corinthian and its various for-profit campuses have not demonstrated that they're worth saving. The U.S. government’s own Consumer Financial Protection Bureau has already sued Corinthian for over $500 million “to protect current and past students of Corinthian students …[and]… to halt these practices.” U.S. Congressman Steve Cohen (D-Tenn) called the deal with ECMC "a misguided use of federal funds," and added,

"When a school like [Corinthian] that has a checkered history is on the mat, throw in the towel. It's over." 

Well said. We don't need another mediocre, for-profit university recruiting students with promises of federally-subsidized loans and jobs that fail to materialize. Rather than propping up this failed enterprise, the Department of Education should simply let it fail.