“Most of the investigations involve trumped-up charges of misleading job placement rates, which federal law requires for-profits – but not public and nonprofit colleges – to document and disclose. But here’s the rub: There’s no standard definition of “job placement.”, Wall Street Journal

“My general understanding is that some of the same short sellers who worked in concert to attack firms in the U.S. mortgage market, financial institutions around the globe, and even sovereign governments…are behind the current administration’s hypocritical attack of “for-profit” colleges (when public and “not-for-profit” institutions have many of the same issues when analyzed on a comparable basis).”, Mike Perry, former Chairman and CEO, IndyMac Bank

Review & Outlook

Obama’s Letters to Corinthian

How to destroy a for-profit college company without due process.

The Obama Administration has targeted for-profit colleges as if they are enemy combatants. And now it has succeeded in putting out of business Santa Ana-based Corinthian Colleges for a dilatory response to document requests. Does the White House plan to liquidate the IRS too?

A month ago the Department of Education imposed a 21-day hold on Corinthian’s access to federal student aid because it “failed to address concerns about its practices, including falsifying job placement data used in marketing claims to prospective students.” The funding freeze triggered a liquidity crisis, which has culminated in Corinthian’s decision to wind down or sell its 97 U.S. campuses.

Like the for-profit college industry, Corinthian draws roughly 80% of its revenues from federal student aid. Yet this is a function of its demographics. For-profit schools educate a larger share of low-income, minorities, veterans and single mothers than do nonprofit and public colleges. Eighty percent of their students lack parental financial support.

California Attorney General Kamala Harris points to a display showing the location of Corinthian Colleges located in California during a news conference Thursday, Oct. 10, 2013, in San Francisco. Associated Press

The Obama Administration’s five-year lashing of “predatory” for-profits has deterred many new students from enrolling in these schools. Corinthian’s system-wide student body has shrunk to 72,000 from 112,000 in 2010, and the company had laid off 1,350 employees in the last year. Then there are investigations by the Consumer Financial Protection Bureau, Department of Justice, Securities and Exchange Commission and more than a dozen state Attorneys General over sundry alleged violations, which have added regulatory uncertainty and legal costs. Keep in mind that Corinthian has been found guilty of nothing.

Most of the investigations involve trumped-up charges of misleading job placement rates, which federal law requires for-profits—but not public and nonprofit colleges—to document and disclose. But here’s the rub: There’s no standard definition of “job placement.”

Federal law leaves states and accrediting agencies to prescribe how for-profits calculate job-placement rates. Yet they all have different rules, and most are open to interpretation. Seizing on the confusion, prosecutors have charged Corinthian with misrepresenting its rates. California AG Kamala Harris’s suit criticizes Corinthian for “company-wide placement verification issues, including a lack of any definitions or standard procedures.” Yet internal Corinthian memos revealed a strategy “to close or sell campuses that are not meeting placement outcomes.”

In 2010 DOE sought to clear up the muddle by asking the National Center for Education Statistics to develop a placement rate methodology. But NCES issued a 20-page report in 2011 explaining the task’s infeasibility due to “the challenges of using institutional tracking of students” which include “the reporting burden on institutions” as well as “the potential for inconsistent documentation and reporting.”

For example, how can colleges obtain credible records verifying a student’s placement in their field of training? W-2s can’t. Nor can student surveys. Only about 27% of graduates from Syracuse’s College of Visual and Performing Arts in 2012 responded to an alumni job survey. Yet DOE is hanging Corinthian for its inability to do what the department’s own statisticians can’t figure out how to do.

In January DOE sent Corinthian a letter denying new program applications and demanding documentation within 30 days of every public job-placement disclosure for every Corinthian program at every campus from 2010 through 2013. The data sweepers also asked for “a list of all students placed by name and Social Security number, the students’ most recent telephone numbers and cell phone numbers, graduation dates and academic programs, job titles, start dates, employers’ names and contact information” (our emphasis).

Corinthian unlike federal agencies such as, say, the IRS doesn’t have a central document management system. Corinthian says it assigned an additional 100 employees to verify job-placement and other information for its hundreds of thousands of students. DOE followed up with letters in April and May expanding its investigation. The company pleaded for more time, but it might have been better off claiming its computers crashed and asking for clemency.

Last month DOE froze all student aid for Corinthian because it had failed “to turn over the documents.” This extraordinary violation of due process is akin to a judge issuing the death penalty while a case is in discovery. Last week the Department signed off on a plan by Corinthian to sell 85 schools and close 12 others. DOE will establish an “independent monitor” with “full and complete access” to personnel, budgets, student records, computer databases and “internal and external complaints about Corinthian.” Naturally, the department is requiring Corinthian to write a blank check to pay this grim reaper.

Students enrolled in colleges that are to be shut down will be allowed to finish their degrees, transfer or withdraw with a full refund. However, these students may not be able to find the same programs at nearby community colleges or for-profit schools. Students are the collateral damage but the real target of this war on Corinthian are investors in an industry that Democrats don’t like: They can destroy you even before they have any evidence.


Posted on July 7, 2014, in Postings. Bookmark the permalink. Leave a comment.

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