In antiquity Corinth was a center of trade and commerce, famous as well for its prostitutes. How interesting to choose that name for a cluster of institutions that once strutted about as “the darling of Wall Street,” and now have fallen from grace.
Floyd Norris’ article “A For-Profit College Falters as Federal Cash Wanes” in the business section of the New York Times for June 26th lays it on the line about these institutions (Everest Colleges in various cities, WyoTech et al.). The economics are appalling -- If you bought their stock for $18.588 in 2010, you could have sold it for 28 cents last week. (You can follow its fluctuations on NASDAQ where it is listed as COCO). The educational issues are equally troubling.
Corinthian made most of its money through Federal student loan programs. Wikipedia reports that “In 2010, [Corinthian] … received 81.9% of revenue from Title IV federal student aid programs.” The high default rate on these loans did not affect Corinthian’s bottom line; the feds pick up the tab. There’s a whiff of a “culture of default’ in all this. After all, who at Corinthian would care if students defaulted? And default they did. For students entering in 2010 Corinthian’s default rate after three years was about 19%. That compares to these averages:
4 year Public Institutions 6.8%
4 year Private institutions 5.1%
4 year Proprietary institutions 13.4%
As long as the students kept enrolling and generating federal dollars, Corinthian could attract plenty of investors. But students have a way of voting with their feet. As an article in Salon, “America’s Worst Colleges” pointed out, “Corinthian had 71,246 students in July 2008, enrolled 120,638 new students during the following year, but ended up with only 89,479 by June 30, 2009.“ (There are currently about 72,000 Corinthian students). Some Corinthian students, moreover, complained they were misled by Corinthian’s aggressive marketing, or were not properly trained in Corinthian courses. In addition California’s attorney-general last year sued Corinthian, claiming that it had lied about the success of its former students, while using high-pressure sales tactics, as the Times reports.
But Corinthian institutions keep getting accredited, despite the mounting evidence that something is going badly wrong. And Uncle Sam keeps writing the checks, most recently $16 million, “with more expected to follow, even though Corinthian has not provided many of the documents the department [of Education] demanded months ago,” as Norris reports in the Times.
So why should we all be thankful to Corinthian? Not just because this sordid story raises questions about the accreditation process and the administration of the federal student loan program. Not just because one now has to look closely at other operations in the for-profit sector. Not even because it raises a challenge to current law which allows colleges and universities to get off scot-free when 10% or more of their student loan recipients default. (At well-run, not-for-profit institutions that rate is almost always in the low single digits). A more fundamental matter now needs to be debated: Are student loans the best way for the government to help students get a college education?
That must be approached primarily as an educational, not a political or economic question. As I argued in a recent issue of the New and Noteworthy newsletter debt can pressure students into making bad choices in course and major selection, In response a physician friend noted an analogy in medicine -- debt leads med students to avoid going into primary care in favor of more lucrative specialties. Would it not be better to put all available federal student aid funds into need-based scholarships, grants that students could use wherever they felt they would gain the best education. Yes, the number of recipients would go down, but the quality of American higher education would almost certainly go up.
Thanks, Corinthian, for making us rethink the whole pattern of government support for students headed for college. .
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