Too Big–and Too Awful–to Fail

The Department of Education and Corinthian Colleges have been engaged in extended negotiations over how the for-profit corporation will either shut down or scale down its various entities, including the Everest University, WyoTech, and Heald College chains.

The government actions against Corinthian Colleges came after the Harkin Report highlighted Corinthian’s extraordinarily high student-loan default rate, its abysmally low graduation rate, and its clearly predatory marketing and recruiting practices.

Given the scope of the problems at Corinthian Colleges, one might wonder why the government simply does not shut the whole thing down.

The most often cited reason is that some 72,000 students are still enrolled with Corinthian and simply closing Corinthian would prevent them from completing the degrees that they are pursuing.

The actual reason is that just about the only way that a student can escape paying off student loans is that the college closes and the student either ceases to pursue a degree or cannot get another institution to accept the credits that he or she has earned at the closed institution.

Given Corinthian’s tarnished reputation, it is very unlikely that a sizable list of institutions will accept credits earned through it in transfer.

Worse for the government, the discharge of student loans applies to all students who have attended within 120 days of the institution’s closure. Given Corinthian very high dropout rate, that provision of the law greatly expands the number of affected students and loans.

So, how much in loans to Corinthian students is the government at risk of having to write off? No one knows for certain or is on the record as knowing, but the most often cited figure is $1.2 billion.

But it turns out that that figure simply represents the amount of federal student loans that, on average, have been granted annually to Corinthian students.

Many of the 72,000 students still enrolled with Corinthian Colleges have been taking classes for two or more years, and if Corinthian is closed, all of their loan debt would be discharged.

So, if the Corinthian situation simply represents the tip of the iceberg in the abuses committed by online for-profit colleges and universities, that goes a long way toward explaining why the federal government has been reluctant to eliminate or even to reduce the billions of dollars in annual profits that it is generating from student loans. Those profits will be needed to cover the disproportionate losses from loans granted to students attending the online for-profits and guaranteed by the government.

So, all of this amounts to a double insult to American taxpayers and students. The government has allowed billions in bad loans to provide enormous profits to the operators of and investors in these sham corporate enterprises, and now it is covering the losses from those bad loans with profits generated by loan payments being made by students at legitimate colleges and universities.

Still, the most shameless irony in all of this may be the argument presented by Corinthian’s attorneys supporting the corporation’s being permitted to continue to operate: If Corinthian is completely shut down, their students will “have no access to academic records, assistance with transition or transfer, or any other services that a school provides.”

 

 

3 thoughts on “Too Big–and Too Awful–to Fail

  1. While there can be good for profits, this, clearly is not one of them. The loan levels at many of these for profit vocational schools is outrageous especially when much higher quality is available at the local community college.

  2. Pingback: Cancelling Out Student Debt for Cents on the Dollar | The Academe Blog

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