[Editor's Note: This post has been updated to provide more clarity on the terms of Corinthian's institutional loan program, and on its cohort default rates over the past five years.]
At nearly one-third of Corinthian College campuses, more than half of all first-year students took out high-cost private student loans in 2009, according to an analysis of Department of Education data. Given this data and Corinthian’s dismal record on student loan repayments and defaults, we at Higher Ed Watch believe that it is entirely appropriate for federal officials to ask whether this giant for-profit college company is doing more harm than good.
We used the U.S. Department of Education IPEDS database to examine the top 100 colleges in terms of non-federal loan borrowing in 2009. At each of these schools, at least 52 percent of first-year students borrowed private loans. We found that 82 of the institutions were in the for-profit college sector. The remaining schools included 17 private colleges and one historically black public university.
Of the for-profit schools, 30, or close to 40 percent, belonged to Corinthian Colleges. These included 27 of the company’s Everest schools and three of the six Wyotech campuses. At five of the Everest schools, more than three-quarters of first-time students had private loans. The largest share of private loan borrowing occurred at the Everest College branch in Chesapeake, VA, where nine out of 10 of these first-year students took on these risky loans. Overall, the median rate for these institutions was 66 percent.
The only other large for-profit school chain that came close to matching Corinthian’s performance was Alta Colleges, the parent company of Westwood College, which has come under fire in the past over its private loan practices. At 11 of Westwood’s 17 campuses, more than half of first-time students took out private loans. The median rate for these institutions was 58 percent.
Other of the country’s largest for-profit college companies, like Career Education Corporation, Education Management Corporation, and ITT Educational Services, each had one or two campuses with similarly high rates. Notably absent from the list was the Apollo Group’s University of Phoenix, which, unlike many of the other companies, doesn’t have its own private student loan product. “[We] made a deliberate decision not to engage in private lending because, quite simply, we believed it was not in the best interests of our students,” a University of Phoenix spokeswoman told Newsweek in 2009.
The leaders of Corinthian Colleges apparently have a different philosophy. They recently told investors that they plan to double the volume of private loans they make through their institutional private loan program to $240 million, despite the fact that they expect that 55 percent of these loan dollars will end up in default. This is outrageous, considering how harmful these loans can be for students. Remember, private loans, like federal loans, generally can't be discharged in bankruptcy.
To be fair to Corinthian, the company significantly reduced the costs of its institutional private loan program last year. The data we used in our analysis are from 2009, when Corinthian charged students a variable interest rate on these loans that averaged 13 to 15 percent, with some borrowers paying as much as 18 percent, according to information that the company provided to the Senate Committee on Health, Education, Labor and Pensions. However, in 2010, Corinthian officials decided to lower the rates by pegging them to the federal unsubsidized loan program -- meaning that they started offering the loans at a fixed rate of 6.8 percent with a 1 percent origination fee. This rate is indeed lower than is generally available in the private loan market. [We have requested additional information from the company about on the terms and conditions on these loans to see how well they match up against federal loans in other respects, and, as a result, may update this post further.] Nevertheless, at Higher Ed Watch, we think it's important to note that despite the reduced costs of the loans, Corinthian still expects that more than half of the institutional loan dollars it lends to its students will end up in default.
The low-income and working-class students who attend Corinthian College schools are not only struggling to pay off their private loans. The Education Department released data last summer showing that only 24 percent of students who left the company’s schools in the previous four years had paid down any principal on their federal student loans. In other words about three-quarters of students who left those institutions during that time had not paid enough to reduce their total loan debt by even a dollar. In comparison, the Education Department found that 44 percent of students at the University of Phoenix had paid down principal on their federal loans during that same period.
Of all of Corinthian’s former students, those who attend the Everest campuses fared the worst. Thirty-three of those 85 schools had repayment rates of less than 20 percent, and five had rates below 10 percent. The Everest Institute’s Detroit campus, for example, had a rate of just 7 percent.
Meanwhile, Corinthian’s schools have experienced sky-rocketing federal student loan default rates in recent years, from a weighted average of 10.5 percent for the 2005 cohort to a projected 21.9 percent in 2009. Company officials say they expect these numbers to drop significantly for the 2010 cohort (to as low as between 9 and 12 percent) as the result of an aggressive effort Corinthian has been making to try to “manage” its default rates. The company has been upfront with investors about how it has been trying to push its riskiest borrowers to get deferments or forbearances on their loans, or to take advantage of the Income Based Repayment program, so that they can’t default during the three-year window when defaults will be counted against the schools by the Education Department.
All of this should be raising major alarms in Washington. The Education Department does not have to wait for the “Gainful Employment” regulation to go full into effect to investigate these schools and the company as a whole. It has that authority now and should exercise it for the good of these students.