The Collapse of a Huge For-Profit College Company Could Cost Taxpayers $200 Million

What’s Behind the Collapse of Corinthian Colleges?

The abrupt closure of for-profit Corinthian Colleges Inc. may cost U.S. taxpayers more than $200 million in canceled student loans.

Corinthian reached an agreement on Sunday with the Education Department to shutter its 28 campuses serving about 16,000 students. Forgiving their debt, if all students request it, would cost the government about $214 million, according to Denise Horn, an Education Department spokeswoman.

When a college closes, enrolled students are eligible to have their federal loans discharged, under certain circumstances. Some Corinthian students who are able to finish their degrees by transferring into other programs may not qualify to have their loans canceled, said Daniel Hanson, an analyst with Height Securities in Washington.

“The principal focus for the Education Department right now is to make sure students left out in the cold find their way into other institutions,” he said in a telephone interview.

The Education Department will help Corinthian hold “transfer fairs,” and will contact Corinthian’s students to point them to information about schools where they can continue pursuing education, Horn said by e-mail. Education Department officials will immediately begin advising students at the closed schools of their options, Education Undersecretary Ted Mitchell said Monday in a statement.

Corinthian’s schools performed well and shouldn’t have been closed, said Rosemary Wilson, an outside spokeswoman for the company. Unable to sell the colleges, Corinthian is now trying to help students continue their educations, she said in an e-mail. Corinthian operates Everest, Heald and WyoTech schools.

Disillusioned Students

Katie Chambers, 28, who took night classes at Corinthian’s Everest campus in City of Industry, California, until March, learned Sunday that the program was going to close altogether. Although just six courses shy of her paralegal degree, she said she probably won’t continue and would try to get all her student loans canceled.

“Our credits are useless,” said Chambers, who has about $20,000 in federal loans and more in private borrowing. “I don’t think any of my units are going to transfer.”

Students may be eligible for discharge of their federal loans if their school closes while they are enrolled or the closure is within 120 days after withdrawal. Those who finish their program before the school shuts down or transfer credits from to finish elsewhere don’t have the discharge option.

To get the process started, students must contact their loan servicer.

Shutdown Ordered

Corinthian was ordered to sell or close its campuses last year after the government slowed payments to the school, saying it falsified grades, attendance and job-placement rates. Had Corinthian failed in September, taxpayers could have faced a potential liability of $639 million in loan discharges, Horn, the department spokeswoman, said.

The company agreed in November to sell about half its 107 campuses to Education Credit Management Corp., a nonprofit organization specializing in student debt collection. The schools now owned by ECMC’s Zenith Education Group will stay open.

A group of former students calling themselves the Corinthian 100 vowed months ago to stop repaying their federal loans, saying they were duped into registering for programs and taking on debt. The Education Department said it will consider debt forgiveness for students who can show they were defrauded by the schools.

Seeking Relief

Six Democratic U.S. lawmakers, led by Senator Elizabeth Warren of Massachusetts, called for the Education Department to grant loan discharge eligibility to include “hundreds of thousands” of students who attended Corinthian’s schools since 2009.

The students signed up because of “unfair and deceptive practices,” and should be entitled to relief, according to the letter signed by Senators Richard Durbin of Illinois, Jack Reed of Rhode Island, Al Franken of Minnesota, and Edward Markey of Massachusetts, and Representative Elijah Cummings of Maryland.

Consumers Union, the advocacy arm of the Consumer Reports watchdog organization, also called for a wider debt relief program.

“We can’t forget the former students who were pulled in with phony claims of job placement, then saddled with a mountain of debt,” Consumers Union said in a statement.

Predatory Practices

U.S. Representative Mark Takano of California said he will propose legislation to protect students from predatory, fraudulent and deceptive practices, “particularly in the for-profit college sector.”

Congress, the Education Department and state and federal attorneys have been scrutinizing marketing and other business practices at for-profit colleges since 2010. Competition for students has also increased as more schools have begun offering on-line classes.

Chambers, the Everest College student, works as an administrative assistant at a manufacturing company that makes product displays for stores. She took courses for 15 months toward an associate’s degree and stopped attending after one of her night classes was moved to 5 p.m. and teachers and administrators stopped answering questions.

“Before all this happened, I thought I was going to go to law school,” she said. “It’s 15 months later, nothing has changed and I’m stuck in the same spot, with loans.”

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