Earlier this month, the Consumer Financial Protection Bureau (“CFPB”) filed a complaint against Corinthian Colleges Inc., a publicly-traded, for-profit network of schools, accusing it of running a predatory lending scheme.
The complaint alleges, among other things, that Corinthian:
- inflated job placement statistics and made other misrepresentations about its career services,
- deceptively and unfairly induced students to incur more than $568 million in debt, and
- took illegal aggressive action to collect on that debt.
Or as the CFPB put it: “We believe Corinthian lured in consumers with lies about their job prospects upon graduation, sold high-cost loans to pay for that false hope, and then harassed students for overdue debts while they were still in school.”
The Corinthian case is illustrative of the corrosive effect the profit motive can have on even the most prominent social institutions. For-profit colleges have a reputation for enriching themselves and their shareholders at the expense of the vulnerable. The CFPB alleges that Corinthian targeted individuals with “low self-esteem” and “[f]ew people in their lives who care about them”; who are “isolated,” “stuck, unable to see and plan well for future”; and “impatient, [and] want quick solutions.” Corinthian then sought to cultivate a relationship of trust with these individuals so that it could influence their decision to enroll in one of its programs. Some for-profit colleges encourage prospective students to consider “how tough their situation is right now and . . . the life they can’t give their family because they don’t have a degree.” The recruitment pitch is designed to lead to one conclusion: an education and degree from a for-profit college is a ticket to the middle class and a solution to all their problems. But this in turn creates a different problem: how to finance the cost of attendance.
Tuition at a for-profit college can be exorbitant in relation to comparable programs at public universities and community colleges. In 2013, the tuition for an associate’s degree at a Corinthian college was between $33,000 and $43,000. The tuition for a bachelor’s degree was between $60,000 and $75,000. For instance, “(a) medical assistant diploma cost[s] $22,275 at Corinthian’s Heald College in Fresno, California, while the same program at Fresno City College costs $1,650. An undergraduate certificate in paralegal studies at the Anaheim campus of Everest Colleges costs more than $43,000. At the Anaheim area community college, an associate’s degree in paralegal studies costs less than $3,000.”
Given the cost, most students cannot afford to pay tuition out-of-pocket and must borrow from the federal government and/or private lenders to finance their education. For-profit colleges seize upon government largesse by taking advantage of the “90/10 rule,” which allows them to receive up to 90 percent of their revenue from federal funding. But many students still cannot afford the cost of attendance even with federal aid. Rather than make programs more affordable, for-profit colleges have instead created an artificial “funding gap” in order to market and promote their own brand of student loans – such as Corinthian’s Genesis loan program.
“Corinthian made sure that the cost of attending its schools was high enough that students would not be able to pay solely through using Title IV aid. Every Genesis loan dollar that Corinthian induced its students to borrow, in effect, allowed Corinthian to receive up to an additional nine dollars in Title IV aid. As a result, Corinthian had strong financial incentives to induce its students into taking out Genesis loans.”
Despite the fact that Corinthian was financing a portion of its students’ tuition, it expected most borrowers to default on their Genesis loans; however, due to the increased availability of federal funding, this was – perversely – good for business.
For-profit colleges can transform aspiring students into legions of indebted borrowers; their future plight is profit. When students default on their loans, which happens at a startling rate, taxpayers are left to pick up most of the tab; the students, well, their financial lives are ruined. For many, the pursuit of an education no longer represents the possibility of upward economic mobility and a better life, but rather a millstone preventing them from even getting off the ground. This is in direct and unequivocal opposition to the purpose of an education. With hope, the Corinthian lawsuit – and others like it – signals a movement toward systemic reform of the for-profit college industry and the implementation of meaningful safeguards to protect students.
For more information, see the United States Senate report on the for-profit college industry.
 Corinthian operates schools under the names Heald, Everest, and WyoTech, with more than 100 campuses across the country.
 One for-profit college implemented a strategy known as the “pain funnel,” pursuant to which a recruiter would set out to locate a prospective student’s “pain point” and then ask progressively more hurtful questions in an effort to persuade individuals to enroll at the college. At another, recruiters were instructed to “keep digging until you uncover their pain, fears, and dreams . . . if you get the prospect to think about how tough their situation is right now and if they discuss the life they can’t give their family because they don’t have a degree, you will dramatically increase chances” of enrolling the student. Senate Health, Education, Labor and Pensions Committee, For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, pp. 61-65 (2012) (“Senate Report”); see also Complaint at ¶ 45.
 In general, a bachelor degree from a for-profit college can be 20 percent more expensive than the cost of an analogous program at a public university, while certificate and associate degree programs can be upwards of four and a half times the cost of community college programs. Senate Report at p. 3.
 In 2012, 85 percent of Corinthian students had family incomes of less than $45,000 a year, while a 2011 survey indicated that over 57 percent of Corinthian students had a household income of $19,000 or less and 35 percent had a household income of less than $10,000. Complaint at ¶ 33.
 In 2009, fifteen publicly traded companies operating for-profit colleges received approximately 86 percent of their revenues from federal taxpayers. Despite the fact that for-profit colleges only enroll about 13 percent of students, they receive 25 percent of all federal financial aid. Senate Report at pp. 3, 24.
 For-profit colleges account for upwards of 47 percent of all federal student loan in default, with roughly 20 percent of borrowers defaulting within 3 years of entering repayment. Senate Report at p. 115. Moreover, 60 percent of Genesis borrowers default within 3 years of entering repayment. Complaint at ¶ 146.