No Orange County company has as much riding on the November election as Santa Ana-based Corinthian Colleges Inc.
Corinthian and other for-profit school operators are hoping for a political sea change as Republicans are expected to make big gains in the House of Representatives and Senate.
A shift could help stem the Obama administration’s education reforms, which, at their most severe, could cripple Corinthian and other for-profit school operators.
“We want to take a high-profile in our communication plan in terms of where the election goes and the implications of the proposed regulations,” said Peter Waller, Corinthian’s chief executive.
The Education Department has proposed a dozen or so rules that would fall hard on for-profit schools, including ones that would limit how they recruit students and potentially cut off federally backed loans to their students.
Corinthian and others are most concerned about a proposal that would require colleges to show that they yield “gainful employment” for graduates. Schools that graduate students with high levels of debt and few job prospects could be cut off from federal student loans.
The gainful employment rule, set to take effect early next year, would disqualify 5% of schools from receiving federal money, according to the Education Department.
More than half of schools would face limits on growth and requirements that they warn students about the risks of excessive borrowing.
The threat of regulation has devastated Corinthian’s shares, which as of late last week were down about 60% for the year with a market value of about $575 million.
Corinthian runs more than 100 campuses in the U.S. and Canada that offer degrees in healthcare, criminal justice and other areas.
Many of its prospective students would be affected by the new rules.
The company and others boomed during the recession as laid-off workers sought training for new jobs. But this year, for-profit schools have come under fire for students who took on more debt than they could afford.
Earlier this year, hedge fund manager Steve Eisman—who gained fame for his early bets against subprime mortgages—called Corinthian and others “marketing machines masquerading as universities.”
Company Response
Corinthian broke its silence this month with a marketing campaign that highlights its graduates and takes issue with the proposed federal regulations.
The campaign, which includes newspaper ads and a website, is based on a study by Boston-based Parthenon Group that found as many as 100,000 people could lose their jobs if the gainful employment rule takes effect. Up to a million students could lose access to schools of their choice, according to the study, which Corinthian funded.
The company is hoping to sway the public and lawmakers who have influence with the Education Department. Several legislators have signed letters to Education Secretary Arne Duncan expressing concern about the regulations.
“We want to make sure that the department—and frankly politicians who can help influence the department—really get to hear what is at stake here,” Waller said.
In all, the department has logged about 126,000 comments on the rule, according Waller.
Corinthian has worked with department officials on potential reforms but was taken by surprise by the gainful employment proposal, he said.
“This is a development over the last nine months that we didn’t necessarily see coming,” Waller said. “They have come out with something now that is very misguided and put together in a hurry.”
Until recently, Corinthian was required to stay quiet about the proposed regulations, amid attacks by investors and lawmakers.
“The way the process works is they propose the rule and the public has 45 days to comment on it,” Waller said. “In the meantime, you’re not allowed to have any dialogue.”
Corinthian’s “My Career Counts” campaign includes ads in 10 newspapers including the New York Times and Los Angeles Times that are expected to run for several weeks.
The ads play up Corinthian’s role in educating poorer, minority students who may not have access to other schools.
“As currently written, this regulation would close the door to future career training for many people who need it urgently,” Waller said. “We undertook this campaign because Washington needs to see the real graduates and people behind the numbers.”
The company has been lobbying lawmakers and seeking to influence think tanks and others, he said.
Corinthian has a legislative affairs office in the nation’s capital, according to Waller.
The company also is aligned with the Washington, D.C.-based Association of Private Sector Colleges and Universities, a trade group with its own lobbying effort.
Corinthian could benefit from the lobbying of its competitors. Pittsburgh-based Education Management Corp. has hired Washington, D.C.-based lobby shop DCI Group, known for its prowess in fighting proposed federal rules.
Many legislators have received campaign contributions from for-profit schools this year.
Corinthian and others are battling a perception about the industry, according to Waller.
“Quite frankly there are a group of people who ideologically believe there shouldn’t be any profit in the world of education,” he said. “Just as there were people 20 years ago who believed there shouldn’t be any hospitals that are not purely for charity.”
$120 Billion
The for-profit school industry, valued at about $120 billion a year, has boomed in recent years. That’s brought scrutiny over the practices of for-profit schools.
About a third of for-profit school graduates are actively repaying their students loans, compared to about 55% for public colleges, according to a Government Accountability Office report.
The report also found that recruiters at 15 for-profit colleges encouraged investigators posing as students to commit fraud on financial aid applications or misled them about tuition cost and potential salaries after graduation.
For-profit schools are needed as public schools wrestle with government funding cuts, Waller said.
“Schools like ours are succeeding in putting America back to work,” he said. “Many traditional colleges and schools are under-funded, over-crowded and thus not accessible to our students.”
The Education Department is set to publish final regulatory language in November. If finalized, the rules would take effect by February.
