Aug. 2, 2007

Significant Victory for Students or Small Potatoes?

Corinthian Colleges agreed Tuesday to pay $6.5 million to settle a lawsuit brought by the California Office of the Attorney General charging “a persistent pattern of unlawful conduct.” Among the allegations levied against Corinthian: the inflation of job placement and starting salary information in order to recruit students to enroll in vocational programs ranging in cost from $7,000 to $27,000; falsification of records provided to the government; and the offering of vocational programs that don’t meet minimum course completion or job placement rates required by the state.

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Although Attorney General Edmund G. Brown Jr. described the outcome as a “groundbreaking settlement” that would provide “a measure of justice and fair restitution” to students who suffered from the alleged misrepresentations, consumer lawyers in California were decidedly less impressed, pointing out that only a sliver of students would possibly benefit from Corinthian’s cash.

“It was a terrible settlement,” said Elena Ackel, a lawyer with Legal Aid Foundation of Los Angeles who has sued the for-profit chain of colleges in the past. Under the settlement, Corinthian, which operates 94 colleges in 24 states, will pay a total of $5.8 million in restitution to students, including $1.5 million for debt cancellation and $4.3 million in refunds. The company will also pay $700,000 in civil penalties, including $200,000 to cover costs of the investigation. In a statement, Corinthian maintains that “[t]he agreement is not evidence of wrongdoing, and the company specifically denied any wrongdoing as part of the settlement.”

“Given that they have evidence that they lied about completion and placement at every campus, $500,000 is not enough of a penalty to do anything to them,” said Ackel.

Doing some quick math to take into account the number of Corinthian campuses in California (18) and the length of the suit (3.5 years), “We are talking about five students per year per school” that will benefit from the settlement, Ackel said. If the refunds are spread among thousands of people, “they’re going to get chump change.”

Mark Kleiman, another California lawyer who has represented whistle blowers in lawsuits against for-profit colleges in the past, agreed that the size of the settlement prompts questions about whether it will have any deterrent effect or adequately compensate all of the affected students.

He added, however, that it’s difficult to judge the settlement without inside knowledge of the attorney general’s evidence against Corinthian. And he pointed out some positive aspects of the settlement from his point of view, including a consent decree enjoining Corinthian from engaging in the unlawful practices alleged in the complaint, and the requirement that Corinthian cease enrolling new students in 11 programs deemed “substandard” by the attorney general’s office for an 18-month period. These include the pharmacy technician and medical lab assistant programs at campuses in Anaheim, City of Industry, Gardena, Los Angeles, Ontario, San Bernardino, San Francisco and San Jose.

In a statement, Attorney General Brown heralded the settlement as a victory for California students. “Corinthian students fully expected that their tuition payments would result in the glowing job opportunities the company promised. Unfortunately, their hopes were dashed as many of the students ended up unemployed and deep in debt. This groundbreaking settlement provides a measure of justice and fair restitution to these students. It also commits Corinthian to reforming its practices for the future.”

It is potentially significant, however, that the state law regulating California’s for-profit colleges, including the stipulation of baseline requirements surrounding completion and placement rates, became inoperable June 30, leaving some serious doubts surrounding California’s ability to monitor its for-profit institutions. In a July interview, Corinthian’s executive vice president for legislative and regulatory affairs, Mark Pelesh, said the company was continuing to act as though the regulatory statute was still in force.

“We disagree with the Attorney General’s conclusions, but we are pleased to have this matter behind us,” the company said in a statement on which its officials declined to elaborate. Corinthian also released its preliminary fourth-quarter results Wednesday, indicating, among other things, an increase in “new student starts,” or newly enrolled students, of 6.3 percent from the fourth quarter in 2006.

One market analyst, Jeffrey Silber, described the settlement as a “positive development” for the for-profit education company, one that “should help the company start off FY2008 with a clean slate.” In an e-mail alert analyzing the settlement, Silber noted that, “With roughly $22 million in net cash as of March 31, 2007, the company has more than enough cash for this settlement.”

— Elizabeth Redden

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