Corinthian bankruptcy suit includes call for repayment freeze and asset sales

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Corinthian case moves through bankruptcy court, as feds try to spread word about debt relief to thousands of former students and Corinthian tries to sell assets ranging from campuses to typewriters.

For-Profit in Tulsa Goes Nonprofit

Community Care College, a small institution located in Tulsa, Okla., that offers certificates and associate degrees in health care and business education, shifted to nonprofit from for-profit status on Wednesday, the Tulsa World reported.

The college is now called Community HigherEd. Its founder, Teresa Knox, told the newspaper that she wants the college to continue being evaluated on student outcomes, graduation rates, job placement rates and student loan default rates. The so-called gainful employment regulations, which do just that, and apply primarily to for-profits, took effect the day Community Care College made the switch.

“‘For-profit is periphery to our primary mission and purpose and minimizes our long-term goal,” Knox said in a written statement. “Our strategy is to increase the number and amount of scholarships offered to students in order to reduce student loan debt and expand educational and career opportunities to those that need it most."

Criticism of the U of Phoenix's Recruiting of Veterans

The nonprofit Center for Investigative Reporting this week published an article alleging that the University of Phoenix “sidesteps” an executive order by the White House that seeks to prevent for-profit colleges from paying for preferential recruiting of students who are recipients of the Post-9/11 GI Bill. The article said Phoenix has paid the U.S. military $250,000 over the last three years to sponsor 89 recruiting events, including concerts, a chocolate festival and a fashion show.

Officials with the Apollo Education Group, which owns Phoenix, said the center portrayed the university unfairly. In a written statement, the company said it supports and has "devoted significant resources to ensure compliance" with the executive order. It also defended its outreach to veterans, saying the "work of the university and Hiring our Heroes, including its presentations, stand above reproach and should serve as an example of exactly the type of information and services our nation’s war heroes need as they transition into the civilian workforce." 

For-Profit Chain Settles with Feds for $13 Million

Education Affiliates, a for-profit chain with 50 campuses, has settled with the federal government over false-claim allegations, the U.S. Department of Justice said. The Maryland-based company agreed to pay $13 million in response to allegations that it received aid payments from unqualified students, some of whom the for-profit admitted by creating false or fraudulent high school diplomas. Education Affiliates also referred prospective students to diploma mills, according to the feds, and falsified students' federal aid applications.

“The various cases that were settled here include numerous allegations of predatory conduct that victimized students and bilked taxpayers,” said Under Secretary of Education Ted Mitchell, in a written statement. “In particular, the settlement provides for repayment of $1.9 million in liabilities ordered by Secretary of Education Arne Duncan that resulted from EA awarding federal financial aid to students at its Fortis-Miami campus based on invalid high school credentials issued by a diploma mill. Secretary Duncan made clear that such abusive behavior would not be tolerated, and we will continue to work with the Justice Department and other federal agencies to ensure that postsecondary institutions face consequences when they violate the law.”

Apollo Group Lays Off Hundreds

Apollo Education Group, the publicly traded company that owns the University of Phoenix, announced continued enrollment and revenue declines in its third-quarter corporate filing, which Apollo released Monday

Phoenix saw its revenue decrease $379.3 million, or 18.8 percent, during the nine-month period that ended May 31. The university's enrollment of degree-seeking students declined to 206,900 students by the end of May, a nearly 15-percent dip from the same time last year. 

In the filing, Apollo also said it was laying off approximately 600 employees, "most of whom were enrollment counselors," as part of measures to reduce costs and to streamline services.

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Education Dept. Selects Official to Develop Debt Relief Process

The U.S. Department of Education announced Joseph A. Smith has been appointed as special master to help the department and student borrowers through the debt relief process in the wake of the Corinthian Colleges shutdown. Smith's appointment is a part of the Obama administration's debt relief plan that is expected to help federal borrowers who can prove they were defrauded by their college.

Smith was appointed in 2013 to monitor consumer relief obligations included in the $13 billion settlement between the U.S. Department of Justice and JPMorgan Chase. In 2012, he was appointed by a bipartisan group of state attorneys general, the federal government and the five largest mortgage servicers to monitor the National Mortgage Settlement -- the largest consumer financial protection settlement in U.S. history.

"Throughout my career in financial services regulation, I have worked to protect the interests of both consumers and taxpayers. That is why it is an honor and a privilege for me to work with the Department of Education on this matter, where I will extend that commitment to protect students as well. In all my work, disclosure and communication have been critical to gaining public trust," Smith said.

While he won't have ultimate decision-making authority in granting debt relief to students, Smith will create an application for borrowers to apply for loan forgiveness, make recommendations on issues and strengthen the process so the department can recover money from schools after successful borrower defense claims.

As of June 23, the department has received 4,500 applications for closed school loan discharges, 1,400 borrower defense claims and 850 online requests to enter forbearance or stop debt collection, Under Secretary of Education Ted Mitchell said.

"They're mostly Corinthian, but there are some other schools trickling in," Mitchell said, although he wasn't able to immediately identify those other institutions.

Mitchell acknowledged that while the department is currently dealing with Corinthian students, it is very likely other institutions will be headed down a similar path, which is why it was important to develop a process for recovering taxpayer dollars from institutions found to be at fault.

"We're hoping and confident that Joe will help us establish procedures that will not only address the Corinthian matter, but subsequent iterations of borrower defense," he said. "We have the right and obligation to retrieve funds from the institution itself."

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Former Student Loan Watchdog Takes on ITT

The former student loan ombudsman for the Consumer Financial Protection Bureau -- who is still taking on for-profit colleges from his new perch -- sent a letter to ITT Educational Services investors Wednesday asking them to reform the for-profit institution.

Rohit Chopra, now a senior fellow with the Center for American Progress, wrote, "I have serious concerns that ITT is not properly managed. Unless investors provide more vigorous oversight over management and the board, ITT will continue to harm both its students and its shareholders."

ITT is facing lawsuits from state and federal agencies for allegedly guiding students to predatory loans and lying to investors about high default rates on those loans. The company has been compared to Corinthian Colleges.

In response to the letter, Nicole Elam, ITT's vice president of government relations and external affairs, criticized Chopra's view as endemic of Washington's bias against the for-profit industry.

"The fact that he would write such a letter to investors days after leaving the [CFPB] trumpeting mere allegations against the company demonstrates a personal bias against our institutions and an unwillingness to allow for due process to work -- the cornerstone of the U.S. legal system," Elam said in a news release. "Allegations are not facts and we think our investors will not take action based on simple assertions from someone with an ideological ax to grind."

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Senate spending plan for college programs sets up likely budget fights

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Spending bill for 2016 would lift NIH funding by $2 billion, but divert Pell money and block Obama regulatory efforts in higher education.

Judge Rejects Second 'Gainful' Challenge

A federal judge dismissed a second challenge Tuesday to the U.S. Department of Education's gainful employment rule.

U.S. District Court Judge John Bates upheld the department's gainful employment regulations, including the debt-to-earnings test and disclosure, reporting and certification requirements that had been challenged in a lawsuit by the Association of Private Sector Colleges & Universities (APSCU), which is the for-profit sector's trade group.

It was the second attempt at blocking this version of the Obama administration's attempt to regulate the industry by holding for-profit colleges accountable for the type of employment and debt students hold once they leave the institution. (A federal judge in 2012 largely invalidated a previous version of the rules.) APSCU argued that any employment after college should be viewed as gainful. The court disagreed, however. The department can measure the average debt load of a program's former students against their earnings and only those graduates who make enough money to service their educational debt will be viewed as gainfully employed. The court also rejected the for-profit group's argument that the metrics are arbitrary.

Last month, a New York federal judge ruled in favor of the department and dismissed a lawsuit brought by the Association of Proprietary Colleges, which represents for-profits in that state.

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Clinton on Veterans and the 90/10 Rule

Hillary Clinton last week said as president she would seek to crack down on the for-profit college sector's aggressive recruitment of military veterans, the Associated Press reported. The former U.S. secretary of state and current candidate for the Democratic nomination for president said she would push to change the so-called 90/10 rule, which prevents for-profits from receiving more than 90 percent of their revenue from federal sources. Under current regulations, veterans' educational benefits like the Post-9/11 GI Bill do not count toward that 90 percent limit. Clinton said she would seek to eliminate this "loophole," as some of her Democratic colleagues in the U.S. Senate have sought to do several times before, unsuccessfully.


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