Feds Search for Corinthian Funds

While under the watchful gaze of the Education Department, Corinthian Colleges apparently mishandled federal funds this year, the Justice Department says in a recent filing.

August 20, 2015
Document filed in court by Corinthian Colleges
A map showing how cash, including federal funds, flowed across Corinthian Colleges' bank accounts.

Even as the Department of Education was closely monitoring Corinthian Colleges, the for-profit education company apparently mishandled federal funds earlier this year, lawyers for the U.S. government said in a court filing last week.

Corinthian's campuses "appear to have violated" federal rules governing how colleges must manage the money they receive from federal student loans and grants, according to a document filed by Justice Department lawyers who are representing the Education Department in Corinthian’s bankruptcy case.

The Education Department is "concerned," they wrote, that some of the money in Corinthian’s bank accounts contains loan balances that never made it to students. That money belongs to the federal government and shouldn’t go to Corinthian’s creditors, the filing says.

Corinthian's lenders, led by Bank of America, are getting the first crack at the cash in the company's bank accounts during the bankruptcy process. The court document alludes to a potential battle between Corinthian's lenders and the Education Department, saying that extra time is needed so officials can work with Bank of America "to avoid costly litigation."

The department declined to comment Wednesday on how it was working with Bank of America and Corinthian on the matter. 

The Education Department's lawyers said the department needs more time to figure out whether federal student aid dollars are scattered across the company's 80 bank accounts because of the "labyrinthine complexity" of how Corinthian managed the flow of cash.

Corinthian’s apparent violation of the department's cash management regulations, according to the filing, involved improperly moving federal dollars into bank accounts that weren’t appropriately labeled.

The court document notes that Corinthian received about $35 million of federal student aid this past April. At the time, Corinthian was being closely scrutinized by the Education Department. The company was operating under heightened cash monitoring and was also being overseen by an independent monitor appointed by the Education Department, who was supposed to have access to the company’s financial records.

The Education Department's search for money it believes it is owed in Corinthian's bank accounts -- months after the company closed and more than a year after officials started closely monitoring the flow of federal dollars to the college -- raises questions about the department's capacity to oversee large, complex for-profit education companies.

Some critics of the for-profit industry have said in the past the department is outgunned when it comes to understanding and tracking on a timely basis the intricacies of how many of the nation's large educational companies operate. The department's inspector general last year said that efforts by the department to improve oversight of large, publicly traded companies had been lacking.

An Education Department official, who declined to be named, said in an email Wednesday that the department had taken "aggressive steps to monitor Corinthian and limit the damage done to students and taxpayers."

"Ultimately, though, nobody can or should be happy with Corinthian’s results," the official said. 


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