Recently, Corinthian announced that it did have enough operating cash to stay in business after the end of this month, and it persuaded the federal government to release some federal student aid money in spite of the fact that it admitted fraud in the reporting of student grades and job placements. Corinthian has also been sued by the California Attorney General based on allegations that it used high-pressure tactics to recruit vulnerable students--including single mothers.
Like most for-profit colleges, Corinthian relies on the federal student aid program to stay in business. It gets about 90 percent of its revenue from the federal government--about $1.4 billion a year. DOE's emergency cash infusion (about $16 million, according to the New York Times) may be enough to stave off closing for awhile at least. But that might not be a good thing for students.
As the Times article stated:
If, as critics contend, many Corinthian students are going deeper into debt to gain useless educations, some of those students might have been better off is the Education Department had stuck to its guns and forced Corinthian to close. Federal student loan rules do not require students to repay loans that were canceled while they were enrolled, leaving them unable to graduate.In most instances, we should not be happy to see a college close, but the for-profit industry is a special case. As Senator Tom Harkin's Committee outlined in its report on for-profit colleges, this sector of higher education only educates about 11 percent of postsecondary students but collects about 25 percent of federal student aid money. The for-profits have the highest student-loan default rate in the higher education industry; according to DOE, one in five for-profit college students default within three years of beginning repayment.
And there is ample evidence that for-profit colleges have exploited low-income individuals, encouraging them to take out loans to pay for programs that don't lead to well-paying jobs. Even if they believe they have been defrauded, these students often have no recourse to the courts, because many of the for-profits require students to sign agreements to arbitrate disputes rather than sue.
Indeed, the Ninth Circuit ruled last year that Corinthian students were compelled to arbitrate their misrepresentation claims against Corinthian--claims that were brought under California's unfair competition law, false advertising law, and California's Consumer Legal Remedies Act.
To its credit, the Obama administration has been trying to impose regulations on the for-profits, but it suffered a setback in the courts when the for-profits were successful in getting some of the Department of Education's regulations thrown out. Recently, DOE issued a second set of proposed regulations, but these new regulations will probably just lead to more litigation.
So we should not be sorry to see Corinthian Colleges close--if that event comes to pass. In fact, we should hope this whole unseemly industry collapses. So far, the federal government has not been successful in effectively regulating the for-profit college industry. But perhaps students will gradually wake up to the fact that they would probably be better off enrolling in low-cost community colleges, where they might not need to take out student loans, than to matriculate at high-cost for-profit institutions that have a very poor track record regarding job placement, degree completion, and student-loan defaults.
Ferguson v. Corinthian Colleges, 733 F.3d 928 (9th Cir. 2013).
Floyd Norris. A For-Profit College Falters as Federal Cash Wanes. New York Times, June 27, 2014.
U.S. Senate Committee on Health, Education, Labor and Pensions. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012.