5/6/2015
The for-profit college system, Corinthian Colleges, filed for Chapter 11 Bankruptcy protection in Delaware Federal District Court on Monday, May 4th, amid a year-long financial crisis. Corinthian’s system, including Everest Institute and WyoTech, consisted of over 100 campuses nationwide and about 74,000 students and over 10,000 faculty and staff. The system is facing the massive financial crunch due to several years of declining enrollment and allegations from the Department of Education (DOE) regarding inflated job-placement statistics. Corinthian had been trying to sell off its assets as part of a deal with the DOE, successfully doing so in-part. On Monday, April 27th, the final 29 campuses affecting 16,000 students shut down for good after the last viable buyer of the remaining facilities backed off of a deal. In the bankruptcy filing, Corinthian listed $19.2 million in assets and liabilities of $143.1 million. Although the 16,000 students who were currently attending will be eligible for student loan forgiveness due to the institution’s closing, a major three-way battle between former students, the DOE, and Corinthian has just brewed from a simmer to a boil.
Corinthian was fined $30 million in April by the Department over the falsified job-placement data and the institution’s pressure tactics to take out private loans. The fine came after demands by the DOE to furnish a wide array of documentation of educational statistics, eventually putting a 21-day hold on federal funding, which accounts for 90 percent of Corinthian’s revenue. This led to the company’s eventual furnishing of over 1.2 million pages of documents to the DOE, although repeatedly denying any allegations of fraud. Through negotiations, the Department provided temporary funding to Corinthian to allow them to sell off assets and wind-down classroom activities. When the final potential buyer withdrew on April 22nd, it precipitated the immediate closure of operations.
Although the partial sell-off of 53 campuses earlier in the year to education non-profit, ECMC Group included a deal for $480 million in private loans to be forgiven, the battle continues between students and the DOE over federal loan debt. The bankruptcy was filed on the same day a meeting between an organized collective of former students known as the “Corinthian 100,” and DOE Secretary Arne Duncan was to have taken place. The group cancelled the scheduled meeting after a month of negotiations, however, over a major disagreement with the Department. The DOE is seeking to settle federal loan forgiveness matters with the former students on an individual basis whereas the group has been seeking blanket forgiveness, citing the fraudulent job-placement statistics and the DOE’s complicity in providing funding for the institutions. In a statement, the group explained their refusal to meet, stating, “The plan is designed to prevent rather than facilitate justice for students. A class-wide discharge is the only way the Department can begin to take responsibility for aiding and abetting the scam. We will not meet with Secretary Duncan until a purely individualized process for Corinthian students is off the table.”
This case highlights the difference between the treatment of corporate debt and student debt. Although there are a few exceptions regarding physical and mental disability and death, student loans are generally not forgivable, nor dischargeable in bankruptcy proceedings. The Corinthian example highlights the disparities in the law. Calling Corinthian a “lemon,” Pauline Abernathy, vice president of the nonprofit student-debt advocacy group Institute for College Access & Success states, “Our laws allow for a clean start for corporations, and essentially the students are requesting the same things.” As an example, Corinthian’s bankruptcy immediately stops several lawsuits that are pending, both from state-level attorney generals and federal agencies over the allegations of fraud. The company will also be able to sell-off its remaining assets in order to repay creditors and lenders. Efforts by the Corinthian 100 made news in March over their refusal to pay back the loans, requesting that individual students affected by Corinthian to debt-strike in order to send a unified message to financial institutions. On a website supporting the group, The Debt Collective writes, “If you owe the bank a thousand dollars, the bank owns you. If you owe the bank a trillion dollars, you own the bank. Together, we own the bank.”
Sources:
JD Supra – Chuck Kunz III
Yahoo Finance – Mandi Woodruff
Wall Street Journal – Stephanie Gleason
Join the conversation!