July 1 (Bloomberg) -- Corinthian Colleges Inc.’s 72,000 students will soon be swept into the biggest collapse the U.S. for-profit education industry has ever seen.
Jessica Arellano, 30, a medical assistant student at Corinthian’s Everest College in West Los Angeles, said on Friday that she wasn’t aware of the company’s situation and that she received a confusing e-mail last week assuring her that classes and student aid would continue as usual.
“I’m going to ask some questions now, ” said Arellano, of Culver City, California.
Corinthian, which also owns the Heald and WyoTech career schools, as well as an online university, is scheduled to present a plan to the Education Department today to sell most of its 107 campuses and close others. The wind-down comes after the U.S. Department of Education cut Corinthian’s access to student aid following more than a decade of complaints.
Lawsuits against Corinthian in two states allege that at some schools instructors don’t teach, the isolated and the unemployed are badgered into enrolling and the ultimate mission is to lure in students to seize federal money. Corinthian, based in Santa Ana, California, has been accused of falsifying grades and job-placement data, luring students with non-existent programs and pushing them into high-interest, subprime loans they can’t repay.
The company has denied the allegations. “There is a standard process by which all students decide to enroll and a very specific, thorough explanation of the financial obligation,” said Kent Jenkins, a spokesman. “By any objective standards, our students do very well.”
For-profit colleges are under increased scrutiny from Congress and the U.S. Education Department for their recruitment practices and student borrowing. Corinthian is under investigation by 20 states, the Securities and Exchange Commission, the Consumer Financial Protection Bureau and the Justice Department. In a filing yesterday, the company said it decided on June 25 to sell its Heald unit within about six months.
Alex Harris, a 34-year-old Navy veteran, was a student at Corinthian’s Everest College in Arlington, Virginia, in 2012 when it announced it would shut down gradually over the next year.
“The degree I got from Everest has no value,” said Harris, who said he was lured to the for-profit school with empty promises of job placement. “I even tried to transfer my Everest credit, and nobody would accept it.”
Harris’s experience mirrors complaints about Corinthian’s training colleges nationwide. He started at the school in 2011 for a paralegal associate’s degree that he said employers and other colleges won’t accept. Harris, who served aboard a naval vessel in Iraq, said he has applied for more than 50 jobs, half paralegal, half general, without success.
“Their pitch was that they would help you find a job afterward, and I was like, ‘OK, I’ll bite,’” Harris said. He has since started over at Rasmussen University’s online program.
The job placement rate for graduates is 69 percent, and more than 700 employees work in career services to help students find jobs, Jenkins said.
“That’s a very, very significant commitment of people and money to helping our graduates find employment in the fields they study,” he said.
Corinthian said it’s continuing to enroll new students. Last week, a dozen senators called for the company to cease enrollments and give current students more information about its financial situation.
States are now rushing to make arrangements for Corinthian students who may soon be displaced.
The California Attorney General’s office put up a website that gives current students information about possible places to finish their education, such as the California State University system or community colleges.
The state is “reaching out to the community colleges to see what they can do,” said Paul Feist, a spokesman for California Community Colleges, where 2.1 million students attend 112 institutions.
The Illinois Community College Board, which regulates 48 schools, has been in communication with community college presidents about taking on Corinthian students, said Karen Hunter Anderson, the group’s executive director. The challenge, she said, is to make sure students don’t lose any credits.
Campuses that close will enter a teach-out phase or the students can transfer to other schools. In a teach-out, the school stops enrolling new students and stays open long enough for current ones to complete their programs. Students at schools that shut down may be able to cancel their federal loans, under Education Department rules.
Corinthian was dealt a blow on June 19, when the Education Department imposed a 21-day waiting period for the company to draw on the federal student aid that accounts for almost all its revenue. The agency released $16 million on June 23, enough for Corinthian to survive for about a week, the company said. Even with federal money, the company said it wouldn’t be able to fund operations without additional bank financing, which it said it has been unable to obtain.
Corinthian’s market value has plummeted to $26 million from its high of $3.2 billion in 2004.
Corinthian was sued by the state of Massachusetts in April over claims it misrepresented job-placement rates and pushed students into high-interest loans. Recruiters allegedly called prospective students as many as 10 times a day, every day, until they enrolled, according the lawsuit.
Teachers at the two Boston-area schools rarely provided instruction, several students told investigators.
A former president of the Brighton campus allegedly fired the admissions director because her philosophy was to put “asses in classes,” according to the complaint. The Brighton campus is in the process of being shut down.
The state regulator “has found no evidence of misconduct as alleged by the attorney general’s office” or violations at either school, Corinthian said in a statement in April. The company said its graduation rate exceeds that of the state’s community college system.
In California, Heald College allegedly lured students with advertisements for radiology programs the school doesn’t offer and pushed them into other courses during enrollment, the lawsuit alleges.
“The complaint paints a misleading and inaccurate picture of our schools,” Corinthian said in a statement after the lawsuit was filed. “We plan to vigorously defend the integrity of the work we do for our students and graduates.”
In both states, whose suits are still pending, schools allegedly paid temp agencies to take students for a few days or hired graduates themselves for two-day health fairs and reported them as employed to fool accreditors, according to the lawsuits.
The company has said it is “wrongly accused of inflating job-placement statistics.”
Arellano, the medical assistant student, sat with classmates in navy blue scrubs in the break room of their campus last week. Arellano, who started in January and plans to graduate in November, said her tuition is $21,000 a year and that she’s pleased with the quality of the program. Fellow student Marcos Hernandez, 23, agreed, saying classes are small, equipment is up to date and staff is helpful.
Corinthian hasn’t given students more information since early last week because nothing has changed since then, said Krissy Humenesky, a Corinthian spokeswoman. On Friday, the company’s 12,000 employees received an e-mail, obtained by Bloomberg, informing them of their benefit options should they become jobless or move to a new employer.
Some of the schools could be attractive to buyers, said Trace Urdan, an analyst with Wells Fargo Securities in San Francisco.
“There are a lot of private equity firms that like that auto-repair space,” occupied by WyoTech, he said. “WyoTech is the simplest, kind of cleanest sale.” He said Heald Colleges are also “quality assets,” though they could be trickier to sell because the market isn’t as interested in business programs right now.
To contact the editors responsible for this story: Lisa Wolfson at email@example.com Chris Staiti