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Corinthian Colleges Shows Why Gainful Employment Rules Are Too Weak

Published:  July 10, 2012

Career college lobbyists may come to rue the day that the U.S. District Court for the District of Columbia struck down the Obama administration’s Gainful Employment (GE) regulations. Because judging by the GE data that the U.S. Department of Education released late last month, the rules actually make even the worst performing for-profit higher education corporations look pretty good.

Take Corinthian Colleges, for example. The company had 44 programs that failed the Education Department’s Gainful Employment tests -- the most of any chain of for-profit schools. Yet, Corinthian College officials were able to boast to shareholders about the company’s performance. “93% of the Company’s programs comply with GE regulations for the time period measured,” the company reported to investors. “During this same period, the programs accounted for 95% of our graduates.”

This is not just good spin. It’s entirely accurate under the rules that the Education Department put in place last year. Responding to a massive lobbying campaign from the for-profit higher education industry, the administration watered down their proposed regulations to such an extent that only programs that flunk all three of the Department’s low-bar Gainful Employment tests are considered to be out of compliance. That means that only programs at which fewer than 35 percent of former students are repaying their loans and where the typical graduates have annual student loan payments that exceed 12 percent of their total earnings and 30 percent of their discretionary income would have eventually been in jeopardy of losing access to federal financial aid.

So at first glance, Corinthian Colleges doesn’t look so bad – 93 percent is an A-minus after all. But a deeper dig into the GE data provides a much more alarming picture of how the company’s students fare.

The Wall Street investment firm BMO Capital Markets conducted such an analysis and found that on the whole, Corinthian Colleges flunked two of the Education Department’s tests: the repayment rate and the debt-to-discretionary-income ratio. Only about one-quarter of the corporation’s former students who entered repayment in the 2007 and 2008 fiscal years have made payments on their federal loans -- a fact that is not surprising given that its typical graduate’s annual loan payment accounts for over a third of his or her discretionary income. In comparison, Devry University had a loan repayment rate of about 42 percent and a debt-to-discretionary income ratio of 11 percent.

Meanwhile, the average earnings for recent Corinthian College graduates is just $20,741, according to BMO’s analysis. That’s the lowest of all of the publicly traded for-profit college companies. Graduates of Devry, in contrast, had an average income of $36,517.

The dismal numbers were driven mostly by Corinthian’s Everest College brand, which primarily trains students for jobs in the healthcare industry. BMO found that only about one-fifth of the schools’ former students have made payments on their debt, meaning that about four-fifths have not paid it down by even one dollar. Again, this is not surprising considering that their annual loan payments account for a whopping 44 percent of their discretionary income.

As Higher Ed Watch has reported in the past, a high proportion of Everest College students take out private institutional loans on top of their federal debt. This is particularly worrisome since the average income of its recent graduates is only $19,629, according to BMO’s analysis. No wonder the company projects that more than half of these private loan dollars will end up in default.

Crunching the data further, I found that an incredible 95 percent of Everest College’s 297 eligible programs flunked at least one of the minimal Gainful Employment tests. [A company’s programs were included in the calculations if all of the required data was submitted on time, and they enrolled at least 30 students.] Of these programs, 254 had repayment rates of less than 35 percent, BMO reported.

The Gainful Employment regulations are supposed to expose those for-profit college programs that are putting students in harm’s way, buried in debt and without the training they need to get jobs that will help repay their loans. But the final rules are so weak that they may have instead given even the industry’s worse players cover.

This is a lesson that Obama administration officials should keep in mind as they revise the regulations. Although the federal judge’s decision was a blow to the Department, it now has the opportunity to craft better regulations -- one that won’t allow Corinthian’s shockingly poor performance get a passing grade.

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