The Corinthian Colleges Lawsuit – All You Need to Know
November 7, 2014

Corinthian Colleges (NASDAQ:COCO), the for-profit education behemoth, received yet another lawsuit last week. This time it came from the State of Wisconsin, which alleged that Everest – one of the school chains operated by Corinthian Colleges Inc., misrepresented important information with the objective of luring students to enroll.

Filed by Wisconsin Attorney General JB Van Hollen, the suit focused entirely on the practices followed at an Everest campus in Milwaukee, which went on to become one of the largest schools in the Corinthian system, before it wound up in August 2013.

Everest College, by Flickr user  Jeramey Jannene

Everest College, by Flickr user Jeramey Jannene

In his article, Chris Morran states that the goal of the admission staff at Corinthian was not to help potential students identify the programs that best suited their background and career goals. Instead, the admission staff simply focused on pushing students into the programs that had the most available openings.

In addition, Corinthian took no steps toward implementing entrance requirements that were more stringent. For example, they did not implement measures such as background checks that could have saved students a lot of money. As a result, the school enrolled students with drug and felony convictions into allied-health programs to learn skills that they would probably never have the opportunity of using. Students with drug and felony convictions will find it impossible to secure employment in the medical field.

Everest also failed to secure a sufficient number of qualified positions for students when it came to providing them with externships. For example, prosecutors claim that the Dental Assistant Program typically offered less than 10 externships each month, although it had around 40 students requiring externships every month.

Corinthian often claimed that 78 percent of Everest graduates found employment in their fields of study. In reality though, the actual percentage of students at Everest Milwaukee, who secured jobs in their fields, was just 5.5 percent. Keith Button reports that Corinthian’s promised lifetime of career services often amounted to nothing more than forwarding Craigslist help-wanted ads to its students.

To boost its placement numbers, Everest Milwaukee included students who had jobs, even though those jobs did not belong to the fields for which the students had received training. It also included details of students who secured occasional work through temporary agencies. For example, Everest Milwaukee counted a Medical Assistant graduate as a successful placement, although the individual was actually working as a barber.

An article by Blake Ellis mentions that Corinthian’s tuition and fees were considerably higher than what federal loans generally cover. As a result, several students had no other option but to take out private loans from the school. Termed “Genesis loans”, these loans had origination fees of six percent and interest rates of about 15 percent as of 2011.

Students also had to start repaying their loans when classes began, which is not the case when they take out federal or private student loans. Corinthian used various illegal and abusive tactics for collecting that money from the cash-strapped students, such as:

  • Pulling delinquent students out of class
  • Informing professors of the delinquent students about the debts
  • Preventing students from using computers and,
  • Blocking students from receiving their diplomas

Therefore, the suit seeks restitution for the affected students and graduates, in addition to forfeitures and fees. This is because Everest Milwaukee shut shop over a year ago. At present, the Department of Education is working with the school to sell 95 campuses and wind up operations at the remaining 12 campuses gradually, which jointly cater to approximately 74,000 students.

The Wisconsin suit is just the latest addition to the list of several state and federal lawsuits and probes into the bad business practices followed by Corinthian. In September, the Consumer Financial Protection Bureau (CFPB) sued Corinthian for following illegal predatory lending practices. In addition, the CFPB had demanded that the school forgive over $569 million in private loans given to students since July 2011.

Some weeks ago, the Rolling Jubilee Fund, a project of a group of Occupy Wall Street activities known as Strike Debt, repaid the private student debt of over 2,700 Everest College students amounting to $3.85 million. Astonishingly, they bought these student loans by paying just $106,709.48 – approximately three cents for each dollar of student debt.

Thomas Gokey, one of the organizers, said that the Fund is more of a tactic than a solution. It simply disproves the claims made by the companies issuing private student loans, which say that an individual owes X amount of dollars. In reality though, the debt is worth much less than that amount, because these loan-issuing companies sell the student loan debts to buyers at discounted prices. Therefore, the borrowers don’t actually owe the amounts claimed by the companies that issue private student loans.

Corinthian is not the only for-profit educator using illegal means for generating profits. Several other private institutions follow similar practices with their students, thereby saddling them with enormous amounts of debt, without giving them the education or career they paid for.

With their actions, however, Strike Debt have not only exposed how the debt market operates, they have also shown how borrowers could collectively conquer their student loan debts at a bargain – even if it amounts to over $1 trillion. The fact that someone is thinking about the ever-increasing student loan debt – and doing something about it – is heartening indeed.