Why failure of for-profit college risks federal money

Staff Writer
Columbus CEO

WASHINGTON (AP) — When for-profit Corinthian Colleges Inc. nearly failed in the summer of 2014, government dollars were on the line along with tens of thousands of students' educations.

Here's how the Education Department was exposed by Corinthian's woes — and what remains at stake now that many of the schools have been transferred to a new nonprofit owner:

As a for-profit career college, Corinthian's revenue depended on its ability to enroll students and then tap federal grants and student loans to cover tuition. In response to longstanding allegations that the school had fabricated its job placement data and lied to students, the Education Department put a three-week delay on the flow of federal loan dollars to the school in the summer of 2014.

That threw Corinthian into turmoil. Because the Education Department oversees colleges and guarantees federal student loans, shutting the schools would have forced the government to forgive loans for Corinthian's 70,000 students. The hit would have been big: Corinthian had received $1.2 billion in student loans during its final full year of operation, and the government automatically writes off loans to students who can't continue their studies due to their college's failure.

With the transfer of two of Corinthian's educational brands — Everest and WyoTech — to a new owner, Zenith Education Group, students stayed in classes and the government avoided having to write off their loans.

Many students would have been unable to continue their educations elsewhere, because Corinthian's accreditation was not recognized by most colleges.

The Education Department is determining which of Corinthian's former students and recent graduates should be eligible for loan discharges because of misrepresentations and misconduct by Corinthian.

Enrollment at former Corinthian schools has shrunk under Zenith to around 15,000, but the career colleges continue to admit new students.

Whether those students receive a solid professional education and can land jobs after graduation remains a financial matter for the government: If they can't get jobs, they will likely default on their student loans.