A California company that runs six for-profit colleges in Western Washington is under investigation by federal and state agencies for its business practices and is expected to close or sell the schools under an agreement being negotiated with the U.S. Department of Education.
Corinthian Colleges, which operates Everest Colleges, is one of several for-profit education companies nationwide facing allegations of preying on low-income students and falsifying job-placement rates, among other concerns. Corinthian is being investigated by the Washington Attorney General’s office, as well as attorneys general in 12 other states, according to federal securities filings. The state Attorney General’s office declined to comment on the investigation.
Washington’s student-aid office has yanked Everest student-aid funding for next year. The company is also on heightened financial monitoring from the Education Department after failing to comply with department requests to address concerns about allegations of falsifying job-placement data used in marketing claims and allegations of altered grades and attendance.
The company has denied any wrongdoing, and says no school closures are imminent.
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The six Everest College campuses are proprietary schools that offer training classes for medical and dental assistants, massage therapists and pharmacy technicians. In 2012, federal data shows, Everest enrolled about 3,000 students in Washington at campuses in Seattle, Renton, Tacoma, Everett, Bremerton and Vancouver.
In addition to the state attorneys general, Corinthian is under investigation by the U.S. Department of Justice, the federal Consumer Financial Protection Bureau and the Securities and Exchange Commission.
“They are financial-aid mills,” said state Rep. Gerry Pollet, D-Seattle, who has twice introduced legislation to strengthen state oversight of for-profit schools that receive state student-financial aid.
The for-profits “spend a lot of money on recruitment,” targeting low-income students who are eligible for federal and state financial-aid programs, Pollet said.
The developments shine a light on a lesser-known part of the state’s higher-education landscape. For-profit schools, which teach career-oriented skills, enroll about 4 percent of Washington’s college students.
Students at only one of Everest’s Washington campuses — the campus in Renton — had been eligible for State Need Grant dollars, Washington’s grant program for low-income students, up until now.
That support is being pulled for the 2014-15 school year, and the $118,000 in State Need Grant money given to students the previous year, and $30,000 in state College Bound scholarship money, is being audited by the Washington Student Achievement Council (WSAC), said Rachelle Sharpe, director of student-financial assistance and support for the council.
WSAC has become increasingly concerned about Everest College-Renton’s performance because of its low job-placement rate, high student-loan-default rate and plummeting enrollment, Sharpe said.
Under federal law, students with federal loans who attend a school that abruptly closes can either finish the program at another school or quit the program. If they quit, they are usually not required to pay back their student loans. But if the school is sold, their obligation continues.
Corinthian has 72,000 students and 107 campuses nationwide, and the Education Department is trying to reach an accord with the publicly traded company so those students aren’t suddenly left with nowhere to finish their degree. The two parties say they will announce a plan for closing some of the 107 schools and selling others in the next few days.
Under the Obama administration, the Education Department has stepped up oversight of for-profit institutions. Critics say the schools charge high tuition, aggressively recruit low-income students, have poor outcomes and are responsible for a large percentage of student-loan defaults.
The Education Department claims that 72 percent of for-profit colleges produced graduates who earned less, on average, than high-school dropouts — although some critics have taken issue with the way those numbers were calculated.
For-profit schools argue that they serve the least-prepared students and help them go from low-wage jobs into careers that pay more money.
Nationwide, students at for-profit colleges make up 13 percent of college students, but they account for 31 percent of student loans and about half of loan defaults.
Washington state, which has a robust system of community colleges, has never developed a large network of for-profit colleges. About 16,000 students studying in Washington go to the 35 for-profit colleges with campuses here, according to federal figures from fall 2012 — the latest year for which figures are available.
Many of them are small-town, locally owned beauty schools. One school, DigiPen Institute of Technology in Redmond, offers bachelor’s and graduate degrees for students who want to go into the lucrative computer-game-design industry.
Many of Washington’s for-profits have double-digit student-loan-default rates, significantly higher than default rates at public and nonprofit private schools. (DigiPen’s rate of 5.7 percent for 2009 is the exception.)
Corinthian has been accused by federal and state investigators of preying on low-income students, falsifying job-placement rates to entice students to enroll and leaving too many students with crippling debt and few useful job credentials.
The company has denied those allegations. A spokesman referred all questions to statements Corinthian has issued on its website.
Corinthian receives most of its revenues from federal student-aid programs — about $1.4 billion a year. It charges about $16,000 a year in tuition.
Students at the Washington campuses of Everest Colleges received about $34 million in federal loans in 2012-13, according to federal data — about 40 percent of all loans issued to Washington students studying at for-profit colleges that year — and $19 million in Pell grants, which do not have to be paid back.
The three-year student-loan-default rate at Everest’s Washington campuses ranged from a high of 37 percent at the Renton campus to a low of 21 percent at the Seattle campus.
A high student-loan-default rate is considered a sign that a school is not training its students for jobs that allow them to make enough to repay their loans.
Between 2011 and 2014, 62 to 67 percent of Everest College-Renton’s graduates were employed, according to numbers gathered by WSAC.
The Renton college’s enrollment has also plummeted, from a high of 778 in 2010-11 to 330 students in 2013-14, according to WSAC figures. WSAC uses enrollment as an indicator of a college’s financial viability.
On Tuesday, the company was to have released an agreement with the federal Education Department on which schools would close and which would be sold. The two sides did not meet the deadline.
“We are optimistic that further conversations with the company will produce an acceptable plan in the next few days that protects the interests of students and taxpayers,” said Ted Mitchell, an undersecretary of the Education Department, in a statement Wednesday.
Under a memorandum of understanding last week with the Department of Education, Corinthian received $16 million in federal student-aid funds that allowed it to keep operating for the short term.
Pollet, the state legislator, was sharply critical of the decision to release federal financial aid to Corinthian — in effect, a bailout of the school using federal dollars. And he said any agreement to sell the Washington campuses leaves students with no assurance of the quality of education they will get under a new owner.
He introduced legislation in 2013 and 2014 to tighten the rules because he is concerned that once a school is approved for State Need Grant funds, the state doesn’t have clear authority to kick it out of the program. The bill passed 93-4 in the House in 2013, and 95-2 in 2014, but both years it died in committee in the Senate.
State Senate higher-education committee chair Barbara Bailey, R-Oak Harbor, said Pollet’s legislation would have “simply duplicated the regulations that are already part of WSAC’s responsibility.” She said she believed WSAC already had the authority it needed to pull funds from schools that didn’t meet the regulations — and, indeed, WSAC did so this year.
Just 11 of the state’s 35 proprietary colleges are approved to receive State Need Grant money. The state awarded $2.7 million in grants to more than 2,000 students at for-profit colleges in 2012-13.
Information from The New York Times was included in this report. Katherine Long: 206-464-2219 or firstname.lastname@example.org. On Twitter @katherinelong.