Consumer Advocates Warn Sale Of Corinthian Campuses To Loan Servicer Company Could Further Hurt Students

everestNearly a month ago embattled for profit-college group Corinthian Colleges Inc. announced it had found a buyer for 56 of its campuses under the Everest and WyoTech brands. But the proposed $24 million sale to Educational Credit Management Corporation has drawn the ire of consumer advocates for its lack of protections to students and the possibility that all liabilities related to litigation or private student loans carried by CCI would be waived.

Consumer advocate groups including the Center for Responsible Lending, the Institute for College Access & Success, as well as our colleagues at Consumers Union sent a letter [PDF] to officials at the Department of Education, U.S. Department of Justice and the Consumer Financial Protection Bureau warning that the pending sale and its stipulations could further hurt students already reeling from CCI’s abusive practices.

In the letter, the groups urged the departments and CFPB to refrain from waiving liability for Corinthian buyers unless the sale provides significant relief for current and former students and contains enforceable safeguards to protect students and taxpayers from future abuses.

“Given the evidence that Corinthian made false representations to secure enrollment, any waiver of liability for a purchaser of Corinthian campuses must ensure adequate relief for past and current students,” the letter reads.

The groups say the current deal would effectively remove an incentive for many of Corinthian’s worst programs to improve because degree programs run by the new nonprofit entity would no longer be subject to the gainful employment rule.

If ECMC, a debt collector and loan servicer, is successful in purchasing the 56 Corinthian Campuses, the company would become the nation’s largest nonprofit career college chain, despite the fact ECMC has no experience running an institution of higher education, the groups say.

When the deal was announced ECMC said it would convert its new business to nonprofit status.

Furthermore, the groups say ECMC’s past record related to unsavory collection tactics doesn’t exactly inspire confidence that they would provide high-quality educational opportunities to Corinthian students.

The New York Times previously reported that ECMC’s actions have often “veered more than occasionally into dubious terrain,” using “ruthless tactics” to “hound” debtors to the point where the company has been sanctioned and reprimanded by judges for abusing the bankruptcy process.

Additionally, the groups took umbrage with the proposed deals’ terms that would prevent students from having the choice to complete their CCI degrees or leave the schools with a fresh start by having student loans discharged.

“ECMC’s lack of any experience running an institution of higher education and its reputation for aggressive loan tactics make enforceable safeguards all the more essential,” the groups write. “Students and taxpayers deserve better.”

To better ensure current and future students of present and future Corinthian campuses are treated fairly the groups provided a set of minimum conditions in which ECMC employ:

No mandatory arbitration clauses or bans on class action lawsuits in enrollment agreements. Nonprofit colleges do not require mandatory arbitration or ban class action lawsuits as a condition of enrollment.

Apply the standards required for all new colleges, including that no more than 33 percent of students withdraw in any academic year. ECMC has said it will run the campuses as new schools, not as they had been run under Corinthian ownership, and it should be required to meet the standards for all other new colleges.

Immediately post all faculty names and credentials on the web. Nonprofit colleges typically make public their faculty names and credentials, enabling prospective students to better evaluate the quality of the programs and faculty.

Apply gainful employment regulation standards and consequences to all programs for seven years. According to the latest public data, many of Corinthian Colleges’ degree and certificate programs would fail the gainful employment metrics or fall in the “zone,” which requires rapid improvement. The purchase of these programs by ECMC must not eliminate requirements for such poor degree programs to rapidly improve or close. The gainful employment requirements should continue to be applied during the “earn out” period, just as the Department continues to apply the 90/10 rule requirements after a for-profit college is purchased by a non-profit entity to ensure the transaction does not evade the law.

Require all recruiting calls be recorded and allow state and federal officials to monitor a random sample. Given the history of deceptive recruiting to attract students to overpriced, low-quality programs, all calls should be recorded and subject to federal and state monitoring.

Even if ECMC agrees to meet the above stated conditions, the consumer advocates say there are other issues with the proposed sale, namely a perceived conflict of interest.

Even though the Department plans to prohibit ECMC from any involvement with the loans of students at its schools, terms of the proposed sale create a conflict by having ECMC share revenue with the Education Department during the “earn out” period, the groups say.

“The Department should not benefit from enrollment growth at the ECMC campuses that the Department is charged with overseeing,” the groups write.

Additionally, ECMC’s plan to establish a separate board for its new education subsidiary doesn’t sit well with the groups.

“The board may have many of the same highly compensated people who are on ECMC’s current boards, which raises questions about whether the board will provide the necessary independent oversight required of nonprofit college boards,” the letter states.

Finally, the groups call ECMC’s plan to reduce tuition by 20% and close certain programs insufficient.

The program closures will likely cost “many times more than higher quality programs available at existing colleges.” Likewise, the groups claim the plan for closures fails to address many of CCI’s worst performing programs, including many failing gainful employment requirements, that have default rates over 30%, and whose graduates earn less than $17,000 per year.

In order to provide better protections for consumers, the groups urge the Dept. of Justice, Dept. of Education and CFPB to follow the California Attorney General’s lead by refusing to waive liability for ECMC, as the proposed terms do not provide adequate relief for past and current students and do not provide enforceable safeguards against future harm

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