NEW YORK (MainStreet) — With Education Credit Management Corp. (ECMC) trying for a February close on its deal to buy Corinthian College’s campuses, questions remain about which ones—and how many—could be left out.
ECMC, through its newly created non-profit company, Zenith Education, announced the purchase of 56 of Corinthian’s 108 campuses for $24 million in November. Closing dates of January 5 and January 12 have been missed. While Corinthian says this outcome was not unforeseen, it can’t promise that it will hit the new date—February 2.
“While we continue to make good progress, the enormity of the transaction and the regulatory approvals needed prior to close have extended our target closing date to early in February,” said CEO Dave Hawn of the Oakdale, Minn.-based ECMC. “We are pleased with all we’ve been able to accomplish over the last several weeks, especially given the holiday timing, and are continuing to move full steam ahead with our plans to make a difference as a nonprofit provider of career school education driven to promote the long-term success of our graduates.”
But according to the January 15 Corinthian Colleges 8-K filing with the Securities and Exchange Commission, Corinthian is blowing off closing dates for some of these schools—because it can. That calls into question how many of these schools—and which ones—could be left out of the deal and what will happen to them. For example, Illinois regulators and elected officials have often taken a dim view of for-profit colleges. Five of Corinthian’s 56 campuses are located in Illinois, about 10% of the total, where Senator Dick Durbin (D-Ill.) and attorney general Lisa Madigan called on Corinthian to stop enrolling students last June.
“The parties currently expect to conduct an initial closing on February 2, 2015,” said the Corinthian 8-K,” including the majority—but not all—of the schools covered by the purchase agreement. “The parties anticipate conducting a second closing after the remaining pre-closing educational consents have been obtained for the remaining schools.”
So for an unspecified number of Corinthian campuses, there’s no firm closing date. But ECMC says that was always part of the plan.
“While we hope to close this transaction in full in early February,” said ECMC spokesperson Shannon Creamer, “we had always planned for the likelihood of a subsequent close due to the various regulators’ schedules, and our purchase agreement gives us the option of closing on any outstanding schools at a later date, to be announced.”
Advocates for students at non-profit colleges see this as an opportunity to shine a brighter light on this deal—and alert regulators who could stop it from going forward.
“Higher Ed, Not Debt is calling on state accreditors to carefully scrutinize the deal to ensure that former students are afforded relief and that significant safeguards are included to prevent future abuse,” said Maggie Thompson, campaign manager at the Washington, D.C.-based student group.
Corinthian came under fire for its proprietary Genesis loans, which, in a lawsuit filed be the Consumer Financial Protection Bureau (CFPB), called them an “illegal and predatory lending scheme.” These loans, regulators and elected officials say, pushed Corinthian’s students further into debt while Corinthian profited.
“Part of the tragedy here is that most of the students who attend the Corinthian company of schools come from disadvantaged backgrounds, and many are the first of their family to go to college,” said CFPB director Richard Cordray. “According to Corinthian’s internal documents, most of the students lived in households with very low income. For these students, Corinthian too often turned the American dream of higher education into an ongoing nightmare of financial despair.”
There doesn’t seem to be anything preventing ECMC—and its new company, Zenith Education—from making these loans to Corinthian’s born-again campuses once ECMC takes over. ECMC CEO Hawn claimed this won’t happen.
“As part of its commitment to increasing affordability and transparency on these campuses, ECMC has said unequivocally that it will not continue the Genesis loan program or any variation of the Genesis loan program—and instead plans to offer millions of dollars in institutional grants to students in need,’ Hawn said. “In fact, ECMC is committed to lowering the cost of attendance for most students with a planned reduction in tuition of 20% for most programs.”
Who will be eligible for institutional grants and whether any part of them will have to be re-paid is unknown. It’s also not clear whether Corinthian’s legacy students will qualify for the same programs as those who enroll after ECMC takes over. ECMC could partner with a financial institution and offer proprietary loans while keeping its distance from anything called Genesis loans.
ECMC’s Creamer declined to address these issues.
“We'll have more information on many of these questions after the close,” she said.
--Written by John Sandman for MainStreet