08.05.14

Following Collapse of Corinthian Colleges, Senators Call on Obama Administration To Perform Better Oversight of the Financial Integrity of For-Profit Colleges

[WASHINGTON, D.C.] - U.S. Senator Dick Durbin (D-IL) today joined Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin (D-IA) and four of their Senate colleagues in asking President Barack Obama to immediately provide more information on current efforts by the Administration to better protect students and ensure that the situation with Corinthian does not repeat itself at other large publicly traded for-profit education companies.  

 

“The recent announcement that Corinthian Colleges Inc. will largely cease operating while currently serving over 70,000 students has revealed a startling lack of liquidity and an unacceptable reliance on federal financial aid dollars for day-to-day operations.  It is also extremely troubling that recent press accounts revealed that the Department of Education did not have ample information, resources, or the expertise needed to properly assess Corinthian’s dire fiscal condition,” wrote the senators. “Though financial analysts were well-aware of the precarious financial situation of Corinthian, the Department apparently was not. As one Department of Education official noted in a recent press article, the government’s financial monitoring system ‘didn’t work in the case of Corinthian.’ Even with the receipt of billions of taxpayer dollars, it is simply remarkable that Corinthian was unable to continue operations in the absence of additional federal financial aid funds for a mere three weeks.

 

“Corinthian Colleges Inc.’s failure raises serious questions about the financial integrity of other similarly situated, publicly traded, for-profit colleges. The Department’s own records indicate that more than 23 additional companies that enroll 4,000 or more students currently have failing or close to failing financial integrity scores,” the senators continued. “One publicly traded company, ITT Tech, for instance, has already notified investors of significant financial concerns. Given that students attending such schools, including Corinthian, hold a combination of Title IV, institutional, and other private loans, we believe it is absolutely critical to protect these students from a repeat of Corinthian.”

 

Despite receiving more than $1 billion in Title IV federal student aid annually, Corinthian Colleges Inc. could not withstand a mere 21 days without additional federal funds.  Even more troubling were recent press accounts revealing that the U.S. Department of Education acknowledged that their financial standards were not adequate to detect Corinthian’s financial crisis.  In light of the hundreds of thousands of students who attend similar publicly traded for-profit schools, the senators demanded answers to ensure that other institutions do not inflict the same chaos and harm on students that has recently been seen at Corinthian.  The letter was also sent to Arne Duncan, Secretary of Education, as well as, relevant Administration officials who should be using their valuable expertise to better protect students and taxpayers, including: Mary Jo White, Chair of the United States Securities and Exchange Commission; Jacob Lew, Secretary of the Treasury; Rich Cordray, Director of the Consumer Financial Protection Bureau. 

 

In April, Durbin and Harkin introduced legislation that would improve coordination between federal agencies that oversee the for-profit college industry.  Through the establishment of an interagency oversight committee, the Proprietary Education Oversight Coordination Improvement Act - which will be introduced in the House of Representatives by U.S. Representative Elijah Cummings (D-MD), the Ranking Member of the House Committee on Oversight and Government Reform - aims to improve enforcement of federal laws and regulations while increasing accountability of for-profit colleges to students and taxpayers. 

 

In addition to Senators Harkin and Durbin, the signatories to today’s letter include: Senators Chris Murphy (D-CT), Brian Schatz (D-HI), Jack Reed (D-RI), and Kay Hagan (D-NC). The full text of the letter is below and can be seen here.

 

 

The Honorable Barack Obama

President of the United States

1600 Pennsylvania Avenue

Washington, DC 20500

 

Dear Mr. President:

 

In light of the financial collapse of Corinthian Colleges we write to express our serious concern with the financial integrity and stability of a number of companies operating large for-profit colleges and ask for an expedited response to a number of important questions this issue raises.

 

The recent announcement that Corinthian Colleges Inc. will largely cease operating while currently serving over 70,000 students has revealed a startling lack of liquidity and an unacceptable reliance on federal financial aid dollars for day-to-day operations.  It is also extremely troubling that recent press accounts revealed that the Department of Education did not have ample information, resources, or the expertise needed to properly assess Corinthian’s dire fiscal condition. Though financial analysts were well-aware of the precarious financial situation of Corinthian, the Department apparently was not.   As one Department of Education official noted in a recent press article, the government’s financial monitoring system “didn’t work in the case of Corinthian.”   Even with the receipt of billions of taxpayer dollars, it is simply remarkable that Corinthian was unable to continue operations in the absence of additional federal financial aid funds for a mere three weeks.

 

In broader terms, Corinthian Colleges Inc.’s failure raises serious questions about the financial integrity of other similarly situated, publicly traded, for-profit colleges.  The Department’s own records indicate that more than 23 additional companies that enroll 4,000 or more students currently have failing or close to failing financial integrity scores.  One publicly traded company, ITT Tech, for instance, has already notified investors of significant financial concerns. Given that students attending such schools, including Corinthian, hold a combination of Title IV, institutional, and other private loans, we believe it is absolutely critical to protect these students from a repeat of Corinthian.

 

To this end, we urge particular attention to the process by which the Administration, and especially the Department of Education, gauge the financial integrity and hold these institutions accountable for their fiscal irresponsibility.  With these concerns in mind, we urge you to provide answers to the following questions:

 

  • Does the federal government have adequate tools to determine the solvency of for-profit education companies on a real-time or reasonable basis?
  • If so, to what extent does the relatively insolvent nature of these corporations pose a substantial risk for students, taxpayers, and investors?
  • If placed under heightened cash monitoring status like Corinthian, to what extent could peer for-profit companies continue to operate on credit or cash reserves without federal funds for extended periods of time?
  • To what extent do “goodwill” accounting metrics mask or understate fiscal responsibility problems as part of the Department of Education’s formal review process?
  • To what extent do “goodwill” calculations at these schools need to be reassessed in light of the financial demise of Corinthian Colleges?
  • To what extent are these firms capitalized to withstand pending state and federal lawsuits?
  • To what extent are these firms capitalized to withstand likely regulatory and statutory changes?
  • What steps has the Department alongside other agencies taken to protect veterans, servicemembers, and other beneficiaries that are less likely to participate in the Title IV programs?
  • What steps are needed to strengthen the Department of Education’s current financial responsibility procedures to better protect students, taxpayers and investors?

 

Unfortunately, we are just beginning to understand the true ramifications to students and taxpayers of the Corinthian house of cards. For the sake of all stakeholders, it is imperative that we receive timely information to these critical questions.

 

 

cc:        Hon. Arne Duncan, Secretary of Education

            Hon. Mary Jo White, Chair, United States Securities and Exchange Commission   

            Hon. Jacob J. Lew, Secretary of the Treasury

            Hon. Rich Cordray, Director, Consumer Financial Protection Bureau

            Cecilia Muñoz, Director, White House Domestic Policy Council

            Jeffrey Zients, Director, White House National Economic Council

            Hon. Sean Donovan, Director, Office of Management and Budget