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

USED Continues To Support Predatory Colleges

The Department of Education is pleased to announce that their program to preserve the school-to-debt pipeline is proceeding apace.

You may recall that the USED once declared they would crack down on predatory for-profit flim-flam artists masquerading as colleges. You may also recall that, when presented with an exceptional example of a chain of egregious sharks, the USED finally stepped in to preserve the interests of everyone except the students involved in the massive scame.

I've covered the story of the USED and Corinthian Colleges before; the more detailed version is here. Let's look at what today's cheery press release actually says.

Zenith Education Group has announced that they have finished glomming up fifty-some campuses from Corinthian College, in a deal that has been under construction since November.

Zenith is a subsidiary of Educational Credit Management Company. ECMC is a debt collection company, specializing in chasing down student loan repayment. Apparently they have pursued those debts a bit overzealously at times, but here they are, cutting out the middle man. Exactly what expertise the "newly created" Zenith has in operating colleges (other than chasing the debts that students run up paying tuition to them) is not clear. But the removal of the middle man allows Zenith to turn these for profit schools into non-profits. After all, I don't have to make money collecting tuition from you if I can make money from selling you the loan for the tuition money.

When they call Zenith "newly created," they aren't kidding. Bizapedia shows them forming in December of 2014. The company is filed in Florida, but it operates out of Oakdale, Minnesota (the six principals are Gary M. Cook, John F. Depodesta, Daniel S Fisher, David L. Hawn, James V. McKeon, and Gregory A. Van Guilder) at 1 Imation Place in the same building as the other ECMC offices reside, plus Premiere Credit of North America LLC. Cook was or is the director of ECMC Technology Services Corporation. DePodesta is the ECMC chairman of the board.

Zenith's interim president is Troy A. Stovall, who "comes to the position with eight years of leadership experience in nonprofit higher education administration and a distinguished background serving in various management consulting and advisory roles." So he totally knows about education. Most recently he was the Executive Vice President and Chief Operating Officer for Howard University, but he also runs his own consulting firm; his LinkedIn profile includes a plug for Time Driven Activity Based Costing, so apparently he speaks fluent consultantese. He's also a principal at something called Oak Forest Ventures, "a solutions firm dedicated to substantially improving the profitability of its clients."

Are you getting the impression that this is way more about business and money than about education and a future for students?

Zenith has a chirpy new website. It touts the qualities of, but does not list by name, its "employees." So, not a faculty, I guess. And they have a whole tab devoted to their partners:

We intend to graduate high-performing, highly skilled students from our schools, and our new partnership program will identify high-quality employers in industries with clear local workforce needs that are sufficiently equipped to support students as they work to embark upon their new careers.

One can hope that will become a bit more concrete and nailed down, as one of Corinthian's many scam-related issues was its tendency to create fake employment for its students to hide its lousy job placement record. This is not great for schools specifically devoted to preparing students for a place in the workforce.

A look at the "our schools" tab confirms what news reports imply-- Zenith has no schools in its chain other than the ones it just grabbed from Corinthian.

That grabbage depended hugely on the USED's involvement. So when they said that they would drop the hammer on predatory colleges, apparently by "hammer" they meant "big fluffy hammer sculpted out of money." Truthout tells the story and makes the case that the USED is saving a chunk of its own bacon. If Corinthian had simply gone belly up or been shut down by the feds, some students would have had the option of a get-out-of-loans free cards, which could have cost the USED a few hundred million bucks. The USED has reportedly been making big bucks from student loans, so anti-shark measures may not be in their business interests.

As part of the deal, "the parties agreed to pay the Department $12 million in an up-front payment, and up to an additional $17.25 million earn-out over the next seven years that will be used to benefit Corinthian students." The Department is announcing a $480 million loan forgiveness plan for borrowers who paid their way to Corinthian with high-cost private loans. Who this covers is not clear from the USED press release, but in any version, it's not much help. If the $480 mill is split over the 30,000 students who just became assets traded from Corinthian to Zenith, that's about $16K. If we add in current Corinthian students as well, it's closer to $7K. The press release says this money will also help past Corinthian students get a fresh start, so that $480 mill is looking tinier and tinier.

The USED also cheerfully reports that Zenith has agreed to all manner of swell things, like voluntarily hiring an independent monitor, which is right up there with politicians setting up ethics committee to oversee their own behavior, under their own direction. I'm not impressed.

Also, "in the months since the announcement of the sale" (which would be December and January) "Zenith has agreed to implement a series of improvements to improve outcomes, strengthen career training, and ensure accountability and transparency." Yes, boys and girls, in just two months (with, presumably, time off for to celebrate Christmas and the big fat present Santa Duncan was delivering) Zenith managed to retool an entire college system that was previously designed to fraudulently use students as straws through which to suck up delicious loan money. Given an organization run by guys who have no actual college-running experience, that is a managerial feat of amazing skill and bullshittery.

Here's the big finish to the federal PR notice:

Throughout, the Department has sought a wind down of Corinthian Colleges that protects students, protects the investment taxpayers have made in their success, and creates opportunities for students to finish what they started. The Department has also sought a resolution that, where possible, establishes a strong and ongoing platform for high quality career education in the future. Today’s announcement by Zenith and Corinthian is a major and positive step in these directions.

And here's how I described this story the last time I covered it

Short version: feds threatened to shut down predatory loan-sucking for-profit scam schools, but decided to bail them out instead. Kind of like finding people in a burning building and saying, "You guys just stay there inside. We're going to hire someone to paint the place."


Once again, we see that zealous federal oversight is for public schools. For privately operated school-flavored businesses, the feds are there to make sure that nothing interrupts the sweet. sweet stream of money flowing to private pockets. It is always possible that Zenith will turn out to be awesome stewards of education, I suppose. But for students, it's a caveat emptor world. For businesses, don't worry-- the government will always watch your back. And don't forget-- this deal was only for a portion of the Corinthian chain-- the rest is still out there, still in business, still preying away. Caveat emptor, indeed.