The Government Created a Monster in Corinthian Colleges. Now We’re Paying for Its Damage.

Secretary of Education Arne Duncan says that bankrupt Corinthian Colleges will not be “the last domino to fall” in the for-profit education industry.

Photo by Olivier Douliery-Pool/Getty Images

U.S. taxpayers are about to pay a lot of money to atone for Corinthian College’s sins. Monday, the Department of Education announced that it would forgive debts belonging to thousands of former students who attended the for-profit education chain, which tumbled into bankruptcy last month after a long and predatory run.

This is a win for decency. It is also symbolic of Washington’s abject failure to regulate the world of higher education during the past decade.

Corinthian was as large as it was vile. At the height of its money-sucking powers, the company enrolled more than 110,000 students and operated almost 120 campuses in the U.S. and Canada, which ran under the names WyoTech, Everest, and Heald. Like most of the for-profit colleges that swelled in size during the late 2000s, it subsisted largely on a diet of federal grants and student loans, borrowed by naive, low-income undergrads who it convinced to pay tens of thousands of dollars by dangling the promise of a decent paying career. The degrees, of course, often turned out to be worthless; of the 30 for-profit college companies that a Senate committee investigated in 2012, Corinthian had the second-highest student loan default rate.

Eventually, it became clear that Corinthian had not merely targeted vulnerable recruits and wrung them for cash, but had also lied to them. That, in the end, was its undoing. Last year, the attorneys general of California and Massachusetts sued the company, alleging that it had it misrepresented its job-placement statistics and training programs to new recruits. Its collapse began in earnest once the Department of Education put a hold on its access to federal loan dollars, “after the company failed to address concerns about its practices, including falsifying job placement data used in marketing claims to prospective students.”

If Corinthian had more money in the bank at that moment, it might have survived. But it was already short on cash thanks to its rapidly declining enrollment, and so the move was effectively a death sentence. The company was forced to cut a deal with the government in which it agreed to sell off most of its campuses. The buyer ultimately had to forgive $480 million of private loans Corinthian’s students had borrowed, in order to settle a lawsuit by the Consumer Financial Protection Bureau that accused the company of running a “predatory lending scheme” and using “illegal debt collection tactics to strong-arm students into paying back those loans while still in school,” as the agency put it.

As CFPB Director Richard Cordray stated when the lawsuit was filed, Corinthian had “turned the American dream of higher education into an ongoing nightmare of debt and despair.”

The blows continued this April, when the Department of Education fined Corinthian $30 million after concluding that it had, in fact, more or less faked its job-placement numbers at Heald, pulling stunts such as paying companies to hire their grads for two days, then counting them as employed. Shortly thereafter, still with roughly 15,000 students, the company chose to close its last 28 campuses and then filed for bankruptcy.  

The federal government built up the for-profit education industry. Now, piece by piece, using the odd assortment of regulatory tools at its disposal, it has torn Corinthian, one of its worst actors, down. The reason we’ve had to witness this sad spectacle is that Washington has been both unwilling and unable to crack down on the for-profit sector and allow regulators to cut schools off of federal aid, when it is clear they are robbing students through legal means by peddling worthless and expensive degrees, rather than through outright fraud. Congress, particularly under Republican control, is a friend of the for-profit industry. The Obama administration’s gainful-employment rule, which would penalize schools whose students end up with lots of debt compared to their income, has been tied up in legal challenges for years. And so, until the government could be more or less certain that a school like Corinthian was actually committing fraud, it couldn’t do much about it.

It is unclear, at this point, exactly how many former Corinthian students will ultimately have their debts canceled. The Department of Education said today that if all 350,000 students who attended in the past five years received forgiveness, the tab would amount to $3.5 billion. It seems unlikely it will rise that high. Under federal law, the secretary of education has the right to decide which “acts or omissions of an institution of higher education” are so egregious that a borrower can use them as a legitimate reason to apply for loan forgiveness. But as Inside Higher Ed points out, that standard is still very murky. Previously, the Clinton administration concluded that students should be eligible if they could show they had been defrauded under state law. Tuesday, Secretary of Education Arne Duncan said that, along with Corinthian refugees who were enrolled around the time their campuses closed, 40,000 students who attended Heald would qualify, since the feds themselves had concluded that their school did, in fact, break the law. Other Corinthian students can apply for forgiveness on the grounds that they were defrauded, but it’s still unknown what standard of proof they’ll need to win. But without a court ruling, the mere existence of a lawsuit by a state attorney general may not be sufficient.

What the government settles on matters, because nobody really expects Corinthian to be the last case of its kind. “Sadly this will likely not be the last domino to fall,” Duncan said Tuesday. Taxpayer money fueled this mess. And they’ll be cleaning it up for a long time.