Thursday, October 17, 2013

California Sues Vocational School for Subprime Loan Practices

The State of California has brought its second lawsuit in six years against Corinthian Colleges, Inc., saying that the company has failed to live up to the terms of a previous settlement with the state. Corinthian Colleges, Inc. (CCI), is one of the largest for-profit post-secondary “career education” companies in North America and reported having 96,631 students in a 2012 10-Q statement. Back in 2007 when Jerry Brown was the state attorney general, Corinthians agreed to settle a lawsuit with the state by paying a $6.5 million fine, including $5.8 million in consumer restitution to students who had been deceived by false advertising. Current California Attorney General Kamala Harris filed a complaint last week against the company for not following the terms of the 2007 settlement, alleging that the schools’ ads continue to mislead students, investors, and regulators about job placement and student default rates. California believes that CCI continues to lure students to take on massive student debt to train for jobs at CCI's schools, and when the students cannot find jobs, the students default on their loans. 

California’s complaint alleges that CCI targets students who head single parent families and have annual incomes that are near the federal poverty line ($19,530 for a three-person household). The complaint alleges that “CCI targets this demographic, which it describes in internal company documents as composed of "isolated," "impatient," individuals with ''low self-esteem," who have "few people in their lives who care about them" and who are "stuck" and "unable to see and plan well for future." CCI attracts students through “aggressive and persistent internet and telemarketing campaigns and through television ads on daytime shows like Jerry Springer and Maury Povich,” the state alleges. One of CCI’s deceptive practices, the complaint says, is arranging for a temp agency to employ students for a few days right before reporting post-gradation employment data. The company simply did not report employment data for several of its schools that closed in 2011.

The recession prompts underemployed adults to return to school and with that comes an uptick in aggressive advertising by for-profit technical schools. The problem is that students at for-profit higher education institutions have loan default rates at much higher rates than the national average. California wants to curb CCI’s falsely reporting post-graduation employment data to lure students into taking out student loans that they cannot repay (or discharge in bankruptcy) after they cannot find a job in their chosen fields.  Watching for-profit schools is difficult enough but monitoring Corinthians has been particularly hard because the company opens and closes its schools at a brisk pace. During the 2011-12 school year, for example, Corinthians announced closures of its affiliated schools in Washington, Chicago, Illinois, Ft. Lauderdale, Florida, Decatur, Georgia and Arlington, Texas. Of course, we in legal education have to clean up our own employment data reporting too, as shown in the well-publicized cases of Villanova Law School and University of Illinois College of Law’s publishing misleading data about students' debt burden and employment statistics after graduation.

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