Judge Lets Corinthian Hide Dire Financial Straits from Students

Tuesday, July 15, 2014

California-based Corinthian Colleges Inc., on the brink of financial disaster and scrambling to sell off and close its campuses, received permission from a judge on Friday to keep that information away from students.

While most everyone on Wall Street is probably aware that the federal government essentially tolled the death knell for the giant for-profit company last month when it put a hold on the loans and grants that are its life blood, Corinthian won’t have to post warnings about it on its websites.

San Francisco County Superior Court Judge Curtis Karnow rejected California Attorney General Kamala Harris’ request for a court order requiring the company to post some sort of warning on its websites that service 81,300 students at 107 U.S. and Canadian campuses that the company is having financial problems.

Her office said Corinthian shouldn’t be advertising that its schools offer “lifetime career services assistance” and are a “solid investment in your child's future.”

Corinthian agreed to sell 85 campuses and close a dozen more after the U.S. Department of Education shut off the federal money that accounts for $1.4 billion of its $1.6 billion annual revenues. Corinthian, which is the parent company of Everest Institute, Everest College, WyoTech and Heald brands, has 24 campuses in California.

The attorney general argued that students were being lured to the schools under the false impression that the schools are stable. Her office sued Corinthian (pdf) last October over “predatory” practices that “targeted some of our state's most particularly vulnerable people—including low income, single mothers and veterans returning from combat.”

Harris said Corinthian used “deceptive and false advertisements and aggressive marketing campaigns that misrepresented job placement rates and school programs.” The same misrepresentations were also made to investors and accrediting agencies, she alleged.

Wall Street is wiser now, but students probably aren’t and Judge Karnow isn’t going to make it any easier for them.

The judge said that the attorney general’s suggestions for website changes were too vague and difficult to execute. Corinthian attorney John Hueston warned the judge that alerting the students could set off a “death spiral.” “If you wind up calling it wrong here, the schools go down and the students are harmed,” he said.

The students are already harmed. The question is, how bad will it be? Will students be able to continue their education or transfer elsewhere? Credits from for-profit institutions aren’t usually transferable to a community college or university.

The for-profit college industry is having a tough time. A scathing report (pdf) by U.S. Senator Tom Harkin (D-Iowa) in 2012 ripped 30 for-profit operations for their high drop-out rates, questionable programs and targeting of non-traditional students who piled up loads of debt.

Judge Karnow scheduled a hearing for August 13, at which he will reconsider the warnings request.

–Ken Broder     


To Learn More:

Corinthian Defeats California Bid for Warning to Students (by Karen Gullo, Bloomberg Businessweek)

Corinthian Colleges Needn’t Disclose Financial Woes in Ads, Judge Says (by Chris Kirkham, Los Angeles Times)

Beleaguered For-Profit Corinthian Colleges Agrees to Get Out of the Business (by Ken Broder, AllGov California)

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