Wednesday, April 15, 2015

Paying Your Bills & The Corinthian 100

The slow-motion train wreck that is the unspooling of the Corinthian for-profit college chain has just dumped one more car off the tracks. Students have announced that they will not repay the debt they incurred attending the nation's top contender for the Predatory College gold medal. While the group launched as a collective fifteen, they have now rounded themselves off at an even 100.

This is not an easy issue to parse. Most of us in the adult world understand a few basic financial principles, including "If you don't want to pay back a huge loan, don't take out the huge loan." But there are other factors at play here.

Corinthian's history is less than exemplary. Founded in 1995, they have since glommed up twenty other post-secondary institutions. They have been called "the nation's worst private college chain" and have been sued many, many, many times; California's attorney general charged them with false and predatory advertising as well as securities fraud. Huffington Post caught them using the practice of hiring their own graduates to help keep their post-grad employment numbers inflated.

One would think that when the USED announced that they were going to shut down predatory colleges that used students as conduit for borrowed money, leaving those students with crushing debt and no marketable job skills-- one would think that just such a pronouncement would leave Corinthian shaking in its boots. That crackdown was announced in March of 2014. By June of 2014, the USED was announcing a plan to keep Corinthian in business. Undersecretary Ted Mitchell (who came to the department carrying strong ties to Pearson, NewSchools Venture Fund, and other investor ties to the private education biz) announced that Corinthian would receive an influx of cash, permission to keep admitting students, and a government overseer to keep an eye on them (powered, I supposed, by the threat of-- I don't know. Stern looks? More cash?). This, apparently, is what Too Big To Fail looks like in the college world.

Next up was selling off parts of the chain-- to Educational Credit Management Corporation, a group specializing in shaking down college students for their loan debts. They have been the subject of more than a few horror stories about overzealous collecting, but they did immediately (as in, December of 2014) set up a new subsidiary named Zenith Education Group to run the schools. Putting a debt collection agency in charge of a college doesn't make a lot of sense, unless you understand that the purpose of the "college" is to recruit "students" to use as carriers for transporting loan dollars from lenders to the "college." The students shoulder all the interest and fees associated with the loans, while everyone else makes the profit. Or as Rep. Steve Cohen (D-Tenn) put it in the Washington Post:

"To prop up a school whose main purpose seems to be to get federal money is a misguided use of federal funds," Cohen said. "When a school like [Corinthian] that has a checkered history is on the mat, throw in the towel. It's over."

Of course, when I say "everyone makes a profit," that's a longer list than you expect. Jump back to November of 2013 with me to read this report about the $41.3 billion dollars in profits on student loans made by the US government. Even if there's a decimal point misplaced, that's an obscene profit to make on the backs of students. If the feds are worried about the cost of college, they need only look in the mirror. Arne Duncan had a sort of non-response response to the report at the time, but the botom line here is that the feds are among the folks with incentive to keep the college debt machine grinding away.

Which brings us back to the issue of the Corinthian 100 and their resolution not to pay back the debt (some of which hits the six-figure range).

On the one hand, I fully sympathize with folks who say, "When you borrow money, you pay it back. Doesn't get any simpler than that. If you borrow more money than you can pay back, that's just dumb. If you don't pay back your debts, somebody else pays the price. Other people should not pay for your dumb."

On the other hand, it's easy to make dumb choices people are lying to you.

Folks who find themselves in debt for Corinthian educations, but without any marketable skills that would allow them to make money-- those folks got in this mess by driving past a dozen corners where there should have been big bright neon red flags. But there were no flags there, because the gatekeepers had taken the flags down and stuffed them in their back pockets.

Corinthian has a repeatedly gotten in trouble for lying, false advertising, misrepresenting itself, and promising what it could not deliver. But the feds did not shut them down, did not demand they put a warning label on their applications, did not publicly chastise them in a manner that might have given applicants pause. And when Corinthian actually started to suffer the free-market consequences of bad behavior, the feds stepped in to protect not the students, but the investors and operators. They actually crafted a plan to allow Corinthian to draw in more students!

And the loans? If I go to buy a house, and I visit the bank for a mortgage loan, generally speaking the bank (excepting the years between, say, 2002-2008) will make sure that they don't lend me more than I can pay, and they will also demand an assessment of the house so that they know I'm getting their money's worth in my purchase. Who was exercising such oversight of these college loans? Apparently, nobody.

Corinthian students have racked up over a half billion dollars in federal loans. The Consumer Financial Protection Bureau has already asked the courts to grant relief, and the Department of Justice has reportedly said that the Department of Education has "complete discretion" to make the loans evaporate. Back in February, a $480 million relief package was announced which would help (about 40%) with the private loans that students took out, but those are separate from the half billion in federal loans. Yesterday the USED released a "heightened cash alert" list of institutions that are under extra scrutiny, but given the department's history, it's not clear what the "extra scrutiny" could lead to, since the scrutinizing that has gone on so far has been pretty unimpressive.

Since I originally posted this piece, Corinthian has been slapped with a $30 million fine by the USED, for the same old shenanigans including lying about job placement (counting in some cases two day jobs at the school itself). Corinthian remains unbowed and claims this is just unfair and unfounded. If I were a cynical man, I might read into the article that the feds finally got fed up with fakery on the principle that it's okay to lie to students, but not to us. Or maybe the relentless coverage finally got to them. At any rate, Corinthian did finally get spanked a bit.

I suppose we could argue that young adults should know better than to trust colleges, loan companies and the federal government, and that grown-ups in the US should know not to trust anybody at all ever. But it's hard for me to look at this mess and not conclude we could do better. Certainly we can do better than to get to the point where 100 young Americans decide that only by publicly trashing their own credit ratings can they hope to get somebody's attention.

Originally posted at View from the Cheap Seats


  1. I suppose we could argue that young adults should know better than to trust colleges, loan companies and the federal government, and that grown-ups in the US should know not to trust anybody at all ever.

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  2. Soon, we'll hear from people who say, well, those people just shouldn't go to college, paralleling the home mortgage fraud where we heard, well, those people just shouldn't own homes.

    Elizabeth Warren, in an appearance on the Daily Show, has a succinct explanation of the whole fiasco: