Last week, for-profit education giant Corinthian Colleges reached an agreement with the Department of Education to sell or close almost all of itsover 100 campuses nationwide in response to increasing financial losses and pressure from federal regulators.
For Corinthian, the trouble started back in January, when the department asked the corporation to provide detailed records of students and their post-graduate employment status, in accordance with compliance regulations.
After six months of waiting for Corinthian to respond, the department played hardball, placing a three-week hold on the company’s federal financial aid payments, which made up almost90 percent of its revenue in 2013.
Who’s to Blame: Public or Private Actors?
Although the Obama administration insists it was not the government’s intention to force the company into collapse, Corinthian announcedwithin days of the June 12 announcement that it would not be able to cover immediate operating costs without access to federal funds.
Faced with an extreme decline in net worth—not to mention increasingly angry regulators—the corporation has decided to shrink drastically.
Federal regulators meanwhile have agreed to make every possible effort to ensure current students have the resources necessary to finish their degrees and recover any misappropriated funds, and in addition have granted the corporation $16 million in temporary funds. (Corinthian currently serves a total 72,000 students nationwide in short-term diploma curricula, as well as associate, bachelor’s, and master’s programs.)
Corinthian should have been willing to turn over the data necessary to determine the fate of graduates.
Since Friday’s agreement, various media outlets have taken sides in what is depicted as a fierce battle between the overly aggressive (or, alternatively, wonderfully protective) Department of Education and the mistreated (or, alternatively, predatory) Corinthian.
The debate has been all too predictable. Pieces inBloomberg and theWall Street Journal lambasted federal regulators, while theChronicle of Higher Education defended the department and called for the increased regulation of for-profit educational institutions.
While it is certainly easy to pick sides, it seems far more productive to analyze what exactly went wrong. Arguably, the department should have allocated more time for Corinthian to collect the necessary documentation, if such was vital, and it should make clear the accountability standards to which post-secondary institutions will be held moving forward.
Undeniably, however, Corinthian should have been willing to turn over the data necessary to determine the fate of graduates, as well as taken measure to ensure its practices were consistent with at least some interpretation of existing postsecondary regulations.
An Overly Dependent For-Profit Industry
On Tuesday,the New York Times editorial board attempted to diagnose the failure, pointing out that the problem lies in “the law [that] allows [for-profit educational institutions] to be utterly dependent on federal dollars.”
The editorial goes on to suggest taking into account graduate repayment rates, as well as the metrics already proposed by the Obama administration—estimated average loan payment and loan default rate following graduation—when considering whether educational programs are eligible to receive federal aid.
While these are certainly worthwhile suggestions, let’s refocus on the problem at hand. When a company receives approximately$1.4 billion out of the annual$1.6 billion revenue from federal financial aid, as Corinthian does, there is a problem.
Six for-profits, enrolling over 100,000 students, derived between 80 and 90 percent of their 2009 revenue from public, federal sources.
CEO Jack Massimino seems not to have heard of diversification, a blind spot resulting in the corporation’s recent inability to function once federal funds were withheld and, ultimately, in its swift downward spiral ending in near total collapse.
Moreover, Corinthian’s funding model is not unique. Among the six for-profit educational institutions that enrolled over 100,000 students in 2010, all derived between 80 and 90 percent of their 2009 revenue from public, federal sources.
To make matters worse, as TCF fellow Suzanne Mettler chronicled in her work Degrees of Inequality, as well as in a March New York Times editorial, these degrees often leave graduates in dire financial straits.
Something must be done to not only protect current students, but to also ensure the government never again finds itself in a position necessitating the provision of short-term funds to sustain a for-profit institution, as they have done for Corinthian over the past few weeks.
Locating a Long-Term Solution
The best place to look is theproportional limits placed upon the revenue of for-profit educational institutions, commonly known as the “90/10 Rule.”
The regulation says no more than 90 percent of institutional revenue can come from sources outlined in the HEA, which includes most types of federal education grants, during two consecutive years if the institution is to continue receiving public funds.
For-profit institutions frequently flirt with this limit, if not cross it outright. In 2012, for example, two of Corinithian’s institutions exceeded this gap. Thus, the first step to avoid future problems like those currently facing Corinthian lies in increasing the proportion of for-profit revenue that must come from non-governmental sources.
This would force for-profit institutions to diversify their revenue streams and close loopholes, such as those allowingGI Bill benefits to be excluded from these figures and permitting institutions to exceed this cap for even a single year.
Senator Tom Harkin spearheaded an effort toinclude GI Bill benefits in the calculations for the 90 percent cap in 2011, but these attempts were left unfinished.
Regardless of thesignificant, and potentially unavoidable, hazards of for-profit educational institutions, these corporations now enroll9 percent of all postsecondary students, compose a $30 billion industry per annum, and, thus, seem here to stay.
The sector’s quick growth over the past twenty years has, undoubtedly, surprised regulators and consumers alike but now is the time to review the role these corporations do play on the post-secondary stage, as well as the relationship between this arena and the federal government.