NEW YORK(MainStreet) - The sale of Corinthian Colleges campuses to student loan servicer and debt collector Education Credit Management Corporation—the ECMC Group—became official last week. Once thought to be threatened, the sale was portrayed by ECMC as a new beginning. Corinthian was valued at several billion dollars a decade ago. ECMC snapped up 56 of its 108 campuses for about $24 million. Corinthian’s operations consist of three colleges—Everest, Heald and WyoTech.
”Today, we begin delivering on our promise to transform the Everest and WyoTech schools we have acquired into first-rate career colleges where success is measured not by how many students we enroll, but how many students complete their programs and get fulfilling jobs when they graduated,” said David Hawn, president and CEO of the Oakdale, Minn.-based ECMC. Hawn said that Troy A. Stovall, was appointed interim president the Zenith Education Group, the ECMC subsidiary which will run the former Corinthian campuses.
Stovall has worked at two Historically Black Colleges and Universities (HBCU), having formerly been the chief operating officer of Howard University in Washington, D.C. and senior vice president of finance and operations for Jackson State University in Jackson, Miss. Zenith will be a non-profit organization—like ECMC—and says it will cut tuition by 20% for students enrolling in Everest College.
While it is now in the education business, ECMC’s website suggests that debt collection is what it knows best. Four of the five buttons on the banner across the top of its home page feature the headings “Prepare to Pay.” “Get Help Paying,” “Manage Default,” and “Understand Bankruptcy.” The Consumer Financial Protection Bureau (CFPB) extracted a significant concession from ECMC – it will forgive $480 million in student debt borrowed from Corinthian’s notorious Genesis loan program. But the ongoing influence of ECMC’s debt collection operations remains to be seen. The deal barred ECMC from making proprietary student loans for seven years. After that, ECMC will be able to get into the lending business, with its own students as customers.
The Association of Credit and Collection Professionals, a Minneapolis-based trade organization representing the debt collecting industry that counts ECMC among its 5,000 members, noted on its website that the ECMC has never operated an institution of higher learning. It also noted that Department of Education Undersecretary Ted Mitchell lauded ECMC for “sharing our commitment that students are provided the opportunity to pursue their career goals by receiving quality education that leads to good outcomes.”
Student advocates believe that the consistently bad outcomes for its students are what defined Corinthian and for-profit colleges generally.
“For years, Corinthian inflated job placement rates and engage in other unscrupulous practices to induce students to enroll and take out federal and private loans,” said Pauline Abernathy, vice president of The Institute for College Access and Success (TICAS). “Stronger rules, enforcement and oversight are needed to protect students and taxpayers from this kind of waste, fraud and abuse. When students are harmed, the companies and executives that profited from fraud must be required to make students and taxpayers whole.”
Often, the bad outcomes students experience at for-profit colleges are defined by the money they borrowed to attend, and Corinthian’s high tuition forced them to borrow big. Often, students take those loans with them when they leave, whether they graduated or not.
“There is a lifetime cap on federal student loans,” said Robyn Smith, an attorney with the National Consumer Law Center noted. “Once they hit the cap, they can’t go on to other schools if they need loans to continue their education.”
The deal comes with a lot of unresolved issues.
“ECMC will offer approximately 40% of students enrolled in certain programs a choice between finishing them, receiving a voucher for a full refund,” said the National Consumer Law Center. “ECMC, through its new education subsidiary Zenith, will present these options to students, leaving them vulnerable to being pressured into the option that most benefits ECMC.”
The other 60% of students at the sold off schools must finish their programs. Although they may choose to withdraw, they might not get a refund. And the Department of Education has not agreed to cancel any Federal loans to former students, Smith said.
NCLC noted that ECMC plans on teaching out 12 of the 56 schools by the end of August about 25% of those acquired by ECMC. During a teach out, students will be permitted to finish their current courses of study before they are shut down. These students can’t qualify for closed school discharges of their federal loans.
Of the three others still held out of the deal, two are in Phoenix and one other is in Rochester, New York. Of Corinthian’s 108 campuses including the ones that have not yet been sold, they are the only ones with regional accreditation, which is considered more substantial and difficult to obtain than national accreditation. State regulators in New York have held up the transfer of the Rochester campus.