Santa Ana-based Corinthian Colleges Inc., one of the nation’s largest operators of for-profit schools and the subject of hundreds of lawsuits, may have been dealt a death blow by the U.S. Department of Education last week.
The government announced that it is freezing for 21 days the federal student loans and grants that are the company’s lifeblood, providing it with $1.4 billion a year in corporate revenue. Corinthian, which is the parent company of Everest Institute, Everest College, WyoTech and Heald brands, quickly announced that its survival was in doubt.
The increased level of scrutiny put 72,000 students, about two-thirds of them in California, at risk of seeing their schools close. The department said it made the decision after the company “failed to address concerns about its practices, including falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.’
Corinthian operates around 100 colleges in the United States and Canada, with 24 campuses in California. The state Attorney General’s office is among those suing the pioneer in for-profit colleges. The lawsuit (pdf) alleges “predatory” activities that “targeted some of our state's most particularly vulnerable people—including low income, single mothers and veterans returning from combat.”
Corinthian told prospective students and investors that its placement rate for graduates averaged 68.1% and was as high as 100%. “Those placement rates are false,” the suit claims. “In some cases there is no evidence that a single student in a program obtained a job during the time frame specified in the disclosures.” Emails and other documents cited in the lawsuit show that senior executives knew the claims to be false.
Internal company documents obtained by the attorney general describe its targeted demographic as “isolated,” “impatient,” individuals with “low self-esteem,” who have “few people in their lives who care about them” and who are “stuck” and “unable to see and plan well for future.”
The company was one of 30 for-profit college operations profiled in a scathing report (pdf) by U.S. Senator Tom Harkin (D-Iowa) that questioned their high drop-out rates, questionable programs and targeting of non-traditional students who piled up loads of debt.
Corinthian told the Securities and Exchange Commission (SEC) on Thursday that the federal freeze on funds will cause a cash flow crisis. Katy Murphy at the Bay Area Newsgroup reported that the federal government forgives student loans of those enrolled at schools that close and California’s Student Tuition Recovery Fund helps those cut off in mid-program. But students will likely lose credits for classes they completed because they won’t be transferable to community colleges or other schools.
The Corinthian stock price, which was already looking kind of junky, fell off a cliff on Thursday. It plummeted around 60% to 33 cents a share. The company said that it had unsuccessfully sought additional financing by its lenders.
Its biggest institutional investor as of March 31 was, by far, Wells Fargo, with 12 million shares. The company’s Advantage Small Cap Value Fd was also listed as the largest mutual fund holder, with 8.7 million shares. Shah Capital Management was Corinthian’s second-largest investor, with around 6 million shares.