Class Dismissed: The Dark Side of For-Profit Colleges

In late April, all 28 campuses owned by Corinthian Colleges abruptly shut down, leaving more than 1600 students out of luck just weeks before the end of the semester. Some were already studying for their final exams. It marks the biggest shutdown in the history of higher education in the United States, and should serve as a cautionary tale for prospective students.

Although some insiders and education officials saw the writing on the wall for the huge Santa Ana, California-based for-profit education company, recruiters continued to woo new enrollees. Most students were left in the dark until the last minute, and many now find themselves burdened with unfinished degrees, courses that may not transfer and huge piles of debt.

After filing for bankruptcy, Corinthian quickly shut down its remaining school campuses including all Heald, Everest, and WyoTech colleges. Most were in California, the majority clustered in the Bay Area, Los Angeles and the Central Valley. Heald College, headquartered in San Francisco, is the nation's oldest group of business career campuses. It was acquired by Corinthian in 2010.

What Happened?

The announcement comes just weeks after the U.S. Education Department said it was fining Corinthian $30 million for misrepresenting job placement rates to potential Heald College students. The company has been in hot water for at least a year, since the Dept. of Education in June 2014 restricted access to federal student aid, which made up about 85 percent of the company's revenue.


Even before that, though, Corinthian was on the road to ruin. Until recently, the company had a massive network of 100 campuses across the country but was forced to close or sell most of its locations as fines and legal actions mounted against it. These included lawsuits brought by the federal Consumer Financial Protection Bureau and attorneys general in California, Massachusetts and Wisconsin, alleging that the company's schools preyed on low-income students with high-interest loans and fraudulent recruiting practices.

Many for-profit colleges are known for using aggressive recruiting practices to attract non-traditional students, a large number of whom are older and come from low-income backgrounds. A sizable portion are also veterans.

A 2012 investigation commissioned by Iowa Sen. Tom Harkin revealed just how much money flowed through the coffers of 30 major for-profit schools, and the questionable practices recruiters use to attract students.

Publicly traded companies like the Apollo Education Group, which owns University of Phoenix, the largest for-profit university system in the U.S., answer to shareholders, while others are owned by private equity firms and closely held corporations. Most of their profits come directly from taxpayer dollars in the form of federal grants and student loans. Among the 30 companies probed in the two-year Senate committee investigation, 86 percent of total revenues came from federal dollars. In 2009-10, that amounted to roughly $32 billion in taxpayer funding.

The dirt

The Senate investigation revealed that several companies, including Kaplan and Concorde, have a history of finding recruits at social service agencies. A separate 2010 investigation by the Government Accounting Office investigated 15 for-profit schools using undercover agents disguised as prospective students. At four of the schools, the GAO applicants were told to falsify their financial information to qualify for student aid.

Meanwhile, Harkin's Senate report dug up company training manuals and memos from several for-profits education companies, detailing the "boiler room sales atmosphere." Recruiters had quotas, incentives, and faced punitive measures in the race to bring in more students. It was common practice, the report found, for recruiters to mislead students about jobs and salaries and deflect financial questions or downplay student debt.

The for-profit college boom

Although for-profit college enrollment rates have plummeted in recent years, the sector grew dramatically in the late 1990s and early 2000, with skyrocketing revenue and enrollment rates. Many schools that had primarily offered short-term, vocational certificate programs moved aggressively towards providing associate and bachelor degree programs. Enrollment further increased as a growing number of schools began to offer online programs. At least six for-profit schools now operate exclusively online.

Between 1998 and 2008, enrollment in for-profit colleges increased by 225 percent, as compared to 31 percent growth in higher education overall, according to the Senate report. By 2010, approximately 2.4 million students -- between 10 and 13 percent of all U.S. college students -- attended a for-profit school.

By 2011, for-profit colleges accounted for only 13 percent of federal student aid borrowers, but nearly half of all defaults, the report found. Nearly 600,000 students that enrolled in 2008-09 had withdrawn by 2010. Corinthian had a 66 percent rate of withdraw among students receiving associates degrees, yet still managed to earn a 14 percent profit margin in 2010. Bridgepoint Education topped the list: 84 percent of associate degree students withdrew that year; the company garnered a 30% profit margin.

What's next?

Thousands of former Corinthian students, meanwhile, are planning to take legal action against the for-profit company, claiming they were duped into accumulating large amounts of debt. Some students may be eligible for refunds of federal student loans, or can try transferring credits, but that's typically difficult as many traditional institutions don't recognize for-profit schools.  And the California Bureau for Private Postsecondary Education agency has a website to help advise students on applying for loan forgiveness and credit transfers.

With little to show from their educational experiences aside from mounting debt, a smaller contingent of students up the ante, declaring a debt strike in the wake of the closures. Claiming that Corinthian Colleges defrauded them, they've refused to pay back federal student loans, arguing that the Department of Education should forgive the debt.

By the numbers

Corinthian enrollment
2001 – 28,372
2010 – 113,818

Corinthian students displaced by April 2015 closure of 28 campuses

Largest U.S. college campus by enrollment (2011)
307,871 - University of Phoenix, online division

Students enrolled in for-profit colleges in 2010-11
Approximately 2.4 million, or 12% of all U.S. postsecondary students

Federal student aid going to for-profit colleges:
$32 billion in 2009-10, or 25% of total federal aid dollars

For-profit colleges’ share of federal student loans
13% of student borrowers; 47% of defaults

Post 9/11 GI bill dollars going to for-profit colleges
$1.6 billion; 37% of total aid