Corinthian's Failure Is the Government's Failure, Too

No doubt you’ve heard the news: Corinthian Colleges has flipped the switch, leaving its 16,000 current students in the dark.

The for-profit “career college,” headquartered in Santa Ana, Calif., had been the subject of student and staff complaints, investigations by numerous state attorneys general, the Consumer Financial Protection Bureau and the Securities and Exchange Commission. Most recently, it was also hit with a $30 million fine by the Education Department for misleading students about their post-degree job prospects.

Jobs, however, aren’t among the affected students’ immediate concerns right now.

Like most other higher-education organizations, Corinthian’s business model is predicated on governmental largesse: specifically, the steady supply of easy-to-get student loans, grants and other aid. So when the ED cut off access to all that in 2014, students were left scrambling for alternate means of financing their studies.

The institution’s collapse, however, has left these same students with debts that will be difficult to repay now that the completion of their degrees is even less certain than it was before (for-profit-school graduation rates are roughly one third that of public four-year schools, according to a College Board policy brief).

According to the ED, these consumer-learners have two choices: They can either seek transfers to other institutions that will credit what they’ve accomplished to date or apply for a discharge of the federal student loans they’d undertaken to attend their now-defunct school.

Discharge sounds awfully appealing in a world where student loans are virtually impossible to escape, even in bankruptcy, but selecting that option would also leave them with nothing to show for their time and efforts. On the other hand, given the increasingly challenged educational-value proposition of the programs that career colleges offer, Corinthian students may have no other choice but to transfer their credits to other for-profit institutions, even though some of these also happen to be under investigation.

So it’s no wonder that when the ED urged Corinthian students to consider that course of action, consumer activists and proponents for educational policy reform were stunned by the department’s seeming about-face on the matter.

Clearly, the ED is stuck between a rock and a hard place.

The “rock” is the department’s now-obvious failure of preventing schools from using abundantly available, low-cost higher-education financing and other aid to develop what amounts to specialty degree programs targeted at economically fragile segments of the student population—degrees that may neither be aligned with those that are bestowed by mainstream public and private institutions nor universally accepted at face value by employers.

The “hard place” represents the significant financial and potentially precedent-setting consequences of discharging debts that, according to the National Center for Education Statistics, are undertaken by an average 83% of students at for-profit colleges versus 63% and 53% of students at private nonprofit and public institutions, respectively.

In other words, it’s all about what to do with a bunch of academic outliers who happen to owe a lot of money.

Apparently, the ED’s response is to punt that ugly ball. But does this crisis really begin and end with Corinthian? More important, are we missing an opportunity to turn this blunder into a blessing?

Many would rightly argue that lax oversight and the proliferation of low-rate financing inspired colleges and universities to build excessively, hire indiscriminately and engage in activities that not only distract from the core mission of providing quality higher education but have also led to practically unaffordable tuition prices.

The other side of that argument, however, is equally pointed: When all is said and done, the schools took the money. It’s therefore perfectly reasonable to expect their active participation in solving the problem, willingly or otherwise.

Rather than shunting these students to institutions that, arguably, have the potential to become the next Corinthians, or writing off billions of dollars’ worth of taxpayer-backed loans, the ED should get to work on a plan to mainstream them into traditional two- and four-year programs at the same schools that continue to cash the government’s checks.

Certainly, it would cost less to transition students in need of remedial education than it would to discharge their average unpaid debts. Furthermore, as the decline in higher-educational enrollments persists and private nonprofit and public school administrators resist taking the long overdue steps to reduce costs and improve educational content, it’s also only a matter of time before what we see taking place in the for-profit sector begins to occur elsewhere.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.