Education Dept. OKs Sale of Failing For-Profit Colleges to Debt Collection Company

Monday, December 22, 2014

Education officials in the Obama administration have decided a large and notorious chain of for-profit colleges should continue to operate instead of shutting down—although the new owner is a debt collection company with no experience running schools and has its own shady past.

Santa Ana-based Corinthian Colleges, described by Republic Report’s David Halperin as “one of the most abusive and deceptive for-profit college companies” in the country, was on its way to going out of business when Education Credit Management Corporation (ECMC), a nonprofit student debt collector, said it wanted to buy it.

That sounded good to federal officials, who have poured a lot of money into the collapsing chain. At stake is a gargantuan loan debt owed by students who are barely getting an education.

“They channeled 370 million taxpayer dollars into Corinthian even after it was clear it was failing,” Senator Dick Durbin (D-Illinois) told BuzzFeed. But he got nowhere with the U.S. Department of Education. “I told them, ‘You’re sinking these students further into debt to support a losing enterprise.’”

Durbin and a group of U.S. senators, including Elizabeth Warren of Massachusetts and Barbara Boxer of California, sent a letter (pdf) to the Education secretary calling for the government to make it easy for duped students to get out of their loans.

That didn’t happen. The department green-lighted the sale of a big chunk of Corinthian to a debt collector.

Officials approved the deal in which ECMC will pay $24 million for 56 campuses operating under the names Everest and WyoTech. Corinthian also operates as Heald College. Together, the three have tens of thousands of students enrolled at 23 California campuses. That information and more can be gleaned from the California Attorney General’s FAQ on the lawsuit the state filed against Corinthian for violating consumer protection and securities laws.

Halperin says there are multiple problems with ECMC stepping in to assume control of the schools, calling it a “terrible mistake.”

For starters, ECMC knows how to harass students about their past-due student loans, not how to administer schools of higher learning, according to reports in the media and statements made by some members of the U.S. Congress. It has its own “checkered history that includes using ruthless collection tactics against student loan debtors who should have reasonably qualified for bankruptcy relief,” noted The New York Times.

Then, there’s the conflict of interest problem. “ECMC has insisted it won’t pay more than $24 million up front,” Halperin wrote. “So in order to recoup some of the taxpayer investment, the agreement includes an ‘Earn Out’ provision providing that ECMC’s new college subsidiary, Zenith, will pay the Department ‘up to $17.25 million … over a seven-year period’ based on a still-unspecified ‘percentage of funds that exceed targets specified by the Department.’”

“In other words,” he added, “the agreement would essentially give the Department an equity position, dependent on ECMC making a good deal of money. What’s the problem with that? The Department is charged with overseeing ECMC’s conduct — that it is not engaged in predatory marketing, or leaving too many students defaulting on their loans, or lying to the Department itself. How can an oversight body have a financial stake in a company it is charged with regulating? It’s a blatant and unacceptable conflict.”

Others objecting to the deal include a coalition of 50 civil rights, veterans, student, and consumer groups that wrote (pdf) to Education Secretary Arne Duncan, Attorney General Eric Holder Jr., and Consumer Finance Protection Bureau director Richard Cordray.

The coalition includes the NAACP, League of United Latin American Citizens, Iraq Afghanistan Veterans of America, Student Veterans of America, AFL-CIO, Consumers Union, and others.

–Noel Brinkerhoff


To Learn More:

Declaring Corinthian Colleges Too Big to Fail: A Terrible Idea (by David Halperin, Republic Report)

Durbin: “I Begged the Education Department” to Cut Funds to Disgraced For-Profit College (by Molly Hensley-Clancy, BuzzFeed)

Feds Sue Corinthian Colleges, Ask Court to Wipe Out Private Student Loans (by Ken Broder, AllGov California)

Rep. Virginia Foxx Will Win Reelection Easily, So Why Is She Raking in Big Money from Donors? (by Steve Straehley, AllGov)

U.S. Education Department’s Student Debt Collector Accused of Ruthless Tactics (by Noel Brinkerhoff, AllGov)

FAQs about Corinthian Colleges (Heald, Everest, and WyoTech Campuses) (Office of the California Attorney General)

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