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California AG Files Suit Against Corinthian Colleges

Adam R.'s picture

Posted October 17, 2013

Last week California Attorney General Kamala Harris filed a lawsuit which alleges that Corinthian Colleges Incorporated, a for-profit university with more than 80,000 students, used unfair and deceptive trade practices in order to give prospective students a false impression of the job prospects afforded by their programs.

Harris found that Corinthian told students that it placed almost all of its students in to jobs, even though the actual figures were no more than 78 percent and possibly even lower. Harris found some publications claiming rates of 100 percent. But according to Harris, Corinithian manipulated its numbers by partnering with a temporary employment agency to boost graduate employment during the short window of time when empoyment numbers were analyzed. For example, one accrediting agency found that 39 of 176 medical assistant graduates had a job at the same firm at the time of the test. The firm, Select Staffing, hired the majoirty of those students to work at a health screening fair for two days. 

The AG found that most associate's programs at Corinithian cost approximately forty thousand dollars, A four-year paralegal degree cost $68,800. 

In an internal document, Corinithian wrote that its target demographic consists of individuals that are "isolated," "impatient," with "low self-esteem," who have "few people in their lives that care about them," are "stuck" and "unable to see and plan well for the future." 

This perspective explains the company's recruitment strategy which focuses on applying repeat internet and telemarketing campaigns. Effectively the company has decided that it can appeal to people by pursuing them in a way that few if any institutions or people would do.  Online lead generation can be relentless. When a person visits some internet job boards, for example, the ensuing cookies become the enzyme that generates new ads on facebook, in gmail, or via pop-ups. It does not cost much to do it and targeting can be extremely powerful. The end result - new enrollments - were attributed to these strategies:

  • Online lead generation: 58 percent
  • Referrals: 19 percent
  • Television: 7 percent
  • Direct Mail: 1 percent
  • Other: 15 percent

Maybe it is telling that sending mail doesn't produce much in the way of results. Some people never open their mail. But you have no choice about what pop-ups on your browser. Moreover, what does it say about their demographic targetings when they chose to buy air time from Jerry Springer and Maury Povich? It should tip off their strategy to get low-income students who might be "isolated" and "impatient." 

I have been spending some time at a local GED center. Here is what their executive director had to say about the marketing directed at her students:

“There are no tests to get in and then there are no courses to make up. They make the whole thing responsive to impulse decisions, which are typical for our students. They have an epiphany and they want it resolved in 48 hours. What is routinely happening now is that during that period of time immediately after students get their GED, they are getting bombarded with advertising from for-profit colleges.” 

Independent data from the Department of Education suggests that Harris' claims about employment have some grounding in truth. In 2010, forty percent of recent Corinthian leavers had already defaulted on their federal student loans. 

It is not a coincidence that those medical assistant students ended up at a job fair that focused on health screenings. The Department of Education tries to make sure that placements take place in the student's field of study. The logic is obvious - it should not count for much if a paralegal takes a job waiting tables.  

Odd Results

It still surprises me that private for-profits schools remain off of the radar of all but a few consumer groups. Lots of people get upset about payday loans and many used to be worked up about refund anticipation loans. Yet in both of those instances, the costs for the most expensive borrowing - repeat payday loan rollovers - rarely breaks one thousand dollars.

With for-profit schools, the scope of borrowing amps up dramatically. Corinthian is not alone in charging forty thousand dollars for a two-year degree in a field that nets a wage of between ten and fifteen dollars per hour. The result is a debt load that might be equal to two years of income for some fields. In the end, many are never going to get on track for the financial trajectory that leads to home ownership and retirement savings.

At some schools, the most popular degree program is the certified nurse assistant track and a near neighbor is culinary arts. In North Carolina, CNAs earn eight dollars per hour. A line cook might pull in twelve dollars per hour at a local franchise restaurant.

Finally, the evidence of default rates make it clear that people are not getting return on investment. A default rate of forty percent is astounding. Sadly, context makes that number even more frightening: default rates only cover the first two or three years after a student leaves. No one tracks what happens to students afterwards.