Corinthian Colleges Inc. has become the poster child for what is wrong with the for-profit college industry — and for what can go wrong when a for-profit crosses the U.S. Department of Education. But while the Corinthian situation is mentioned frequently in the media in a short-hand reference, it’s easy to forget about the litany of legal problems and regulators that dogged the company well before it announced its plan to close or sell its schools.
Earlier this month, Corinthian provided investors with a primer, a Form 8-K filing with the U.S. Securities and Exchange Commission, that provides a handy reference to its long list of issues.
Here are the highlights:
First and foremost, the U.S. Department of Education
The Department of Education has ongoing reviews of Corinthian’s Everest College Phoenix program and nine campuses in Florida, Washington, California, Michigan, and Oregon. In the preliminary report for ECP, the department accuses the school of failing to inform students about how much financial aid they were entitled to, failing to tell them about program costs, and delaying the payment of federal financial aid funds.
In January, the department notified Corinthian that it had denied approval for many new programs at some of the company’s institutions that were in the recertification process, and that it would require pre-approvals for new programs and locations. The reason: Corinthian had lied about job placement rates, grades, and attendance, and because the department has several ongoing for-profit investigations. Corinthian claims that employees falsified records only in a few instances, and that those employees were disciplined.
Letters sent by the department in January, April, and May asked Corinthian for an extensive amount of information about job placement, attendance, and grades. Corinthian says it has produced 1.2 million pages of data in response to the January request for information, but in June, the department asked about information that the company had failed to provide — as well as more information. Most importantly, the department imposed a 21-day freeze on Corinthian’s federal student financial aid funding.
On June 22, Corinthian and the education department agreed to a plan to sell most of the company’s schools and close others — a move the company put into play with a July 3 operating agreement with its subsidiaries. A month later, on July 24, the department said it intended to deny recertification for Everest Institute in Cross Lanes, WV, and Eagan, MN, to receive federal student financial aid funds. Corinthian has contested the department’s contention that it misrepresented Everest’s job placement rate.
The SEC and Justice Department had their own investigations
The SEC has been investigating Corinthian since at least June 2013, seeking information from the company on its student recruitment, attendance, completion rates, job placements, student loan defaults, compliance with U.S. Education Department requirements, and financial and accounting matters.
Meanwhile, the U.S. Department of Justice is investigating allegations regarding Corinthian’s recruiting and financial aid practices, as well as allegations that the company manipulated attendance records to receive federal financial aid funding for students no longer attending school.
And then there's the "90/10 Rule"
Both the SEC and the Department of Education are investigating whether Corinthian has complied with the so-called 90/10 Rule, which makes a for-profit college ineligible for federal student financial aid if that college earns more than 90% of its revenue from federal funding.
One 90/10 Rule issue under investigation is how Corinthian used revenue from its Canadian campuses in calculating that it was under the 90% threshold. If the Department of Education determines that the non-U.S. revenue can’t be used in the 90% calculation, then Corinthian’s compliance with the rule will be in jeopardy, the company said.
In the crosshairs of two accreditors
On July 31, the Accrediting Commission of Career Schools and Colleges notified Corinthian that it was issuing a warning to five Everest Institute campuses because the Illinois Board of Higher Education ordered them to stop sales, advertising, marketing and enrollment. The company is contesting the Illinois board’s order.
Earlier that month, the accrediting agency for Everest College Phoenix — the Higher Learning Commission — asked the college to suspend recruiting until the school had provided information showing it had the resources to support ongoing operations. Corinthian has stopped recruiting and enrolling students from Iowa and Minnesota in its online courses, and is teaching out its campus in Eagan, MN, in response to demands by the two states.
In June and July, agencies overseeing veterans education in Virginia, Florida, New York, and Illinois suspended new enrollments of veterans in Corinthian campuses in those states. In California, the veterans agency suspended benefits for both new and continuing veteran students in the state. Corinthian is contesting the suspensions.
Legal action at the consumer and federal levels
A shareholder lawsuit filed in June 2013 claims Corinthian didn’t disclose information in 2011, 2012, and 2013 that would have caused its stock to trade at lower prices. In October and December 2013, a former instructor and an admissions employee of Corinthian, respectively, separately filed what could become class action lawsuits accusing the company of failing to pay wages, including overtime, and of payroll reporting violations.
Since 2010, Corinthian has received subpoenas or similar demands for information from the attorneys general in Florida, New York, Illinois, Minnesota and Iowa; the U.S. Department of Education’s Office of the Inspector General; the U.S. Attorney’s offices for the Northern District of Georgia and the Central District of California; and the U.S. Consumer Financial Protection Bureau.
The Iowa attorney general’s investigation is also on behalf of Arkansas, Arizona, Connecticut, Idaho, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Tennessee, Washington, Pennsylvania, Colorado, New Mexico, and Hawaii.
Civil and enforcement actions
October also saw the filing of a civil complain by the California Attorney General’s Office, which accused Corinthian of false advertising and lying about job placement rates. This was followed in December with a notification from the Consumer Financial Protection Bureau that legal action was being considered for its alleged violation of the Consumer Financial Protection Act.
On April 3, the Massachusetts Attorney General’s Office filed a civil complaint accusing Corinthian of unfair recruiting, lying about its financial aid and debt collection, and setting up a program for subsidized loans that students couldn’t repay. And the Wisconsin Attorney General's Office gave notice in July that it intends to bring an enforcement action accusing the company of violating state consumer protection laws.
When all of the investigations and lawsuits are tallied, Corinthian may be one of the most scrutinized companies in the country, with at least four federal agencies, four state veterans education watchdogs, two accreditors, and attorneys general representing 23 states holding a magnifying glass to the company.