The Rise and Fall of Corinthian Colleges: A Cautionary Tale in For-Profit Education

Corinthian Colleges Incorporated (CCI) emerged in the mid-1990s as a significant player in the for-profit post-secondary education sector in North America. Through acquisitions and expansions, it grew into one of the largest institutions of its kind, offering career-oriented diploma and degree programs in various fields. However, the company's success was marred by allegations of fraud, misrepresentation, and predatory lending practices, ultimately leading to its collapse in 2015. This article explores the history of Corinthian Colleges, the factors that contributed to its downfall, and the aftermath for students and the broader for-profit education industry.

Founding and Early Growth

Corinthian Colleges was founded in February 1995 by five executives at National Education Centers, a struggling trade school in Irvine, California. The men engineered a leveraged buyout and renamed the chain Corinthian. The company quickly expanded through acquisitions, becoming a major provider of career-focused education. Corinthian operated colleges and training programs under the names Everest College, Heald, WyoTech, and QuickStart Intelligence. Everest College offered diploma and associate degree programs. Everest Institute offered diploma programs.

Academic Programs and Tuition Costs

Corinthian Colleges and its subsidiaries offered a range of programs in fields such as healthcare, business, criminal justice, transportation technology and maintenance, construction trades, and information technology. These programs were often marketed as a pathway to better career prospects and higher earning potential.

However, the cost of tuition at Corinthian institutions was significantly higher than at public community colleges. For example, at the Southern California campus of Corinthian’s Everest College, an associate of science degree in paralegal studies cost about $41,000; meanwhile, at Santa Ana College, a nearby public community college, the same program cost about $2,400, according to a Senate report.

Reliance on Federal Funding and the 90/10 Rule

Few Corinthian students could afford those fees. Because so many Corinthian students qualified for aid, most of the company’s revenue came from federal education funds. Corinthian Colleges heavily relied on federal student aid to generate revenue. This reliance was governed by the Department of Education’s so-called 90/10 rule. According to this rule, for-profit colleges could not derive more than 90% of their revenue from federal student aid programs. The rest of the money had to come from someplace else. That threatened Corinthian’s financial structure, federal regulators said in their lawsuit.

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To make up for that lost private financing, Corinthian marketed what it called “Genesis” loans to its students - private loans with interest rates topping 14 percent, records show. Actually, Corinthian had a financial interest in the loans, regulators said. At first, Corinthian bought all the Genesis loans from issuing banks soon after origination. Between 2011 and 2014, students borrowed $568 million in Genesis loans, Senate investigators found.

Recruitment Practices and Job Placement Rates

The promise of career success was at the heart of the recruitment pitch. Recruiters marshaled impressive statistics to buttress their claims that a Corinthian education promised “a better career, a better life, a better way to get there,” as advertisements put it.

Many Corinthian admissions officers were former telemarketers, records show. To boost placement rates at campuses in Georgia and Massachusetts, the company allegedly paid employers to give graduates temporary jobs, federal regulators said. The placement rates were of crucial importance to Corinthian - and not just for recruiting.

Allegations of Fraud and Misrepresentation

Over the years, attorneys general in 21 states launched probes of Corinthian. Many students who enrolled at Corinthian concluded they had been deceived, according to lawsuits. Some complained that their courses didn’t seem focused on relevant training or weren’t rigorous.

Major Allegations Against Corinthian Colleges:

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Inflated Job Placement Rates: The DOJ investigated the institution’s widespread use of falsified job placement rates in marketing materials to entice prospective students. Corinthian Colleges inflated figures by including short-term or unrelated jobs to mislead enrollees. For example, the government found that Corinthian campuses paid temporary employment agencies to hire their graduates and send them back to the same campuses - counting them as having been successfully placed in careers. And Corinthian locations counted students who were already working before they even enrolled as having been successfully placed.
Predatory Lending Practices: The CFPB filed a lawsuit for predatory lending practices and pressuring students into private loans with exorbitant interest rates. The suit highlighted how Corinthian used aggressive tactics to trap students in financial debt.
Deceptive Marketing Strategies: Corinthian focused on low income and minority groups, leveraging Deceptive Marketing Strategies to exploit their aspirations. The Department of Justice obtained internal company documents in which CCI employees described the company's target demographic as "isolated", "impatient", individuals with "low self-esteem", who have "few people in their lives who care about them" and who are "unable to see and plan well for future".
State Attorney General Investigations: Several states, including California and Massachusetts, pursued legal action against Corinthian for violating state consumer protection laws. These investigations revealed a pattern of fraud across multiple campuses and online programs.

Financial Troubles and Enrollment Decline

For example, Corinthian began 2010 with 86,000 students and ended the year with 110,000, an increase of 24,000. But along the way, 113,000 students left. By 2014, the Genesis defaults, the investigations and a barrage of negative publicity had put Corinthian into a financial tailspin. Enrollment dropped below 75,000. The company reported losses of more than $90 million.

As with the entire education sector, CCi had faced a decrease in enrollment and a corresponding depressed stock price.

Government Scrutiny and Sanctions

The Department of Education asked the company to provide detailed records, including Social Security numbers, job placement results, and attendance and grade changes, of students. This was part of compliance with federal regulations designed to make sure that colleges that don't offer a good value to students, don't get student aid money. When Corinthian didn't fully respond, in June, the Department of Education placed a three-week hold on financial aid payments to Corinthian. That reduced revenue to a trickle. The cash freeze was a big problem for the college, which had underlying financial difficulties.

Earlier this month, the Education Department slapped Corinthian with a nearly $30 million fine, accusing the company of misrepresenting job placement rates. In an investigation that began in January 2014, the Education Department found that Corinthian locations misled students by inflating their job-placement rates. Education Department said it was fining Corinthian $30 million for misrepresented job placement data and altered grades and attendance records.

Sale of Campuses and Closure

For $24 million, Corinthian sold 58 campuses to a nonprofit set up by ECMC Group, which also owns a major student loan collection agency known for aggressive tactics. The other campuses were closed. Corinthian sold many of its campuses to a nonprofit education group last year, allowing many students to continue their schoolwork. But it was unable to sell the remaining 28, which it blamed Sunday on "federal and state regulators seeking to impose financial penalties and conditions on buyers" and potential partners.

On February 19, 2015, all 14 Everest campuses in Ontario, Canada were shut down. On April 26, 2015, following a series of legal challenges by state and federal agencies, Corinthian Colleges announced that they would cease operations at all remaining United States locations. The most recent closures ended instruction for about 16,000 students and spurred the loss of 2,700 jobs.

Bankruptcy and Loan Forgiveness

Then, in May 2015, Corinthian filed for bankruptcy, reporting less than $20 million in assets and $143 million in debt. Eligibility to participate in federal student aid programs is terminated immediately and irrevocably in the event of a bankruptcy filing. Department of Education forgave student loans held by about 11,000 former Corinthian students, most of them in California.

The company and federal officials said they are both working with other colleges to help the roughly 16,000 displaced students find educational offerings near their locations.

The $5.8 Billion Settlement and Borrower Defense

The Legal Saga of Corinthian Colleges culminated in a $5.8 billion settlement aimed at relieving students burdened by unmanageable loans and sparking significant legal reforms in student loan protections.

The $5.8 Billion Settlement Against Corinthian Colleges was not a sudden outcome. It resulted from years of investigation by state and federal regulators into fraudulent advertising, inflated job placement rates, and the misrepresentation of student success. Under pressure from multiple government agencies, Corinthian Colleges faced legal action, ultimately leading to its closure in 2015. history.

Department of Education announced that it would cancel all federal student loans owed by more than 560,000 students who attended Corinthian Colleges between 1995 and 2015.

The $5.8 billion settlement had significant legal and financial implications: Key outcomes included:

Student Loan Forgiveness: Approximately 560,000 students who attended Corinthian Colleges were eligible for full loan forgiveness under the settlement.
Closure of Corinthian Campuses: The company’s financial demise led to the shuttering of campuses nationwide, leaving students and staff in limbo.
Increased Oversight of For-Profit Colleges: Federal and state regulators imposed stricter scrutiny on for-profit institutions, ensuring better oversight of marketing and lending practices.

The Corinthian settlement significantly bolstered Borrower Defense’s credibility as a tool for Students Seeking Relief From Predatory Lending. It demonstrated the federal government's willingness to cancel fraudulent student debts en masse, thus validating thousands of pending claims. Moreover, it spurred reforms in how loan forgiveness applications are processed and increased public awareness about Consumer Rights In Higher Education.

Aftermath and Lessons Learned

The collapse of Corinthian Colleges had a significant impact on students, employees, and the for-profit education sector as a whole. Thousands of students were left with worthless degrees and significant student loan debt. The closure of campuses resulted in job losses for faculty and staff.

The Corinthian Colleges saga serves as a cautionary tale about the potential for abuse and exploitation in the for-profit education industry. It highlights the importance of government oversight, consumer protection, and institutional accountability to ensure that students receive a quality education and are not burdened with unmanageable debt.

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