California AG Targets For-Profit College Chain on Job Prospects

By Staff

California Attorney General Kamala Harris has filed a lawsuit against Corinthian Colleges Inc., a for-profit college chain based in Orange County. Corinthiant manages 10 Heald College campuses in California among its 111 schools, which also include Everest and WyoTech locations.

According to a report in The Sacramento Bee, the AG’s office served a “scathing complaint” on Corinthian, accusing the chain of inflating or outright lying about job-placement prospects to potential students and to the investors who bet on Corinthian’s business model. The lawsuit depicts a disingenuous marketing strategy that includes preying on students who are vulnerable, socially isolated or down on their luck: those who have “low self-esteem,” feel “stuck” or cannot “see and plan well for future,” according to internal documents the complaint cites.

Corinthian declined to address the complaint’s specific allegations to The Bee but defended the company’s record in connecting its graduates to work, employing more than 750 people to that end.

Sustaining the for-profit business model requires a steady flow of students and the federal aid dollars they bring. Former admissions officers have filed lawsuits maintaining that they faced pressure to keep their numbers up. Doing so could mean rewards, according to court filings; falling short could mean getting fired. A spokesman for Corinthian denied that recruiters operate under any sort of numbers-based incentive structure and noted that the attorney general’s lawsuit made no such charge.

California sued Corinthian for both deceiving consumers and misleading investors. The basic premise is that Corinthian did not deliver what it offered: Officials touted the schools to students and investors as a route to gainful employment, but the attorney general’s office cited evidence that Corinthian exaggerated those claims.

In that respect, the attorney general’s suit adds to a list of lawsuits already filed against Corinthian on behalf of students and shareholders. Whether they had sought degrees or bought stock, the people bringing these lawsuits maintain they were deceived. A prior investigation by California’s attorney general led, in 2007, to a court order barring Corinthian from making false statements about job placement.

Loan default rates offer one way to measure a degree’s utility. Under tightened financial aid eligibility requirements included in California’s 2012 budget, several Corinthian schools became ineligible for Cal Grants this school year. Fourteen Everest College campuses registered three-year default rates of more than 20 percent; eight were more than 30 percent.

Graduation statistics can also be instructive. Six Heald College campuses flagged by the California Student Aid Commission lost their Cal Grant eligibility for graduating fewer than 30 percent of their students in 2010.

Regulation of for-profit colleges is divided between the entities that constitute what is commonly known as “the triad:” federal guidelines, regulations set by a California consumer entity and the accreditation agencies that sign off on schools and programs.

Accreditation agencies require some for-profit schools to meet minimum job-placement rates. The intent is to ensure programs fulfill their purpose of getting students work, but attorneys and experts who have sued and studied the industry said it risks giving schools an incentive to distort their job-placement numbers.

The Corinthian spokesman told the Sacramento newspaper that the company briefly offered financial incentives to job-placement officials who found work for more students, but has since discontinued the practice.

The California state lawsuit alleges widespread fraud in how Corinthian broadcast its job-placement record, alleging that publicly disclosed job- placement rates fail to match Corinthian’s internal estimates and that executives were aware of the discrepancy. The complaint faults Corinthian for manipulating job numbers to advance claims that were “untrue, misleading or both.”

Some students listed as placed had gotten two-day jobs at health-screening fairs, the complaint further alleges. In one instance, it says, a Corinthian executive emailed a colleague about paying temp agencies to “place students to meet the accreditation deadline and minimum placement %.” It says Corinthian employees created Craigslist ads that they presented as having been written by self-employed students.

Underlying all of this is a tangled thicket of regulatory responsibility, with separate members of the so-called “triad” wielding different levels of authority and operating under distinct standards.

Federal law dictates certain criteria that for-profits must meet to be eligible for federal financial aid, stipulating they must prepare students for “gainful employment in a recognized occupation.” Critics call the language overly vague, and it is currently under review at the U.S. Department of Education.

In California, the prior state law regulating for-profits expired in 2007. The fledgling agency that now oversees nonprofits, the Bureau for Private Postsecondary Education, requires that schools disclose certain student data. It conducts on-campus compliance inspections, relying on a staff of 11. It also approves licenses for schools to operate.

Because of the accreditation agency it falls under, Heald College is exempt from state regulation. WyoTech and Everest, the two other branches of Corinthian named in the attorney general’s lawsuit, went through condensed approval processes because of how they received accreditation.

For some for-profit skeptics, the accreditation agencies are part of the issue. For-profit school executives often populate the leadership committees of accreditation agencies, and the revenue supporting accreditors flows from their member schools. That level of overlap between regulator and regulated raises questions about the amount of will to crack down. Heald Colleges came under the authority of the Western Association of Schools and Colleges’ senior commission in the last few years, when it began offering bachelor’s degrees.