February 13, 2015

Misleading Assurances in the Corinthian-ECMC Deal


Student loan debt collection company ECMC has just begun its takeover of 56 campuses of the failed, predatory for-profit Corinthian Colleges. But already, assurances from both federal government officials and ECMC itself regarding protections for students in the deal appear to have been highly misleading. A brand-new Everest College enrollment agreement, seen by Republic Report, combined with other information, suggests that the deal is worse for students than has been promised.

A striking example is a provision of this new enrollment agreement document, which is presented under the header “Everest College, An affiliate of Zenith Education Group, Inc.” Zenith is the new non-profit college subsidiary of ECMC, and the provision in question concerns students’ rights when they have a dispute with the school. ECMC, in its agreement this month with the U.S. Department of Education, dropped its determined insistence that students be required to surrender their rights to take disputes to court and instead be required go to a private arbitrator. ECMC’s change of course was presented to the public and media as an important concession to students and their advocates (including me), as well as some members of Congress, who had emphatically argued that such mandatory arbitration agreements harm students and are typical of predatory for-profit colleges like Corinthian but not used by legitimate non-profit schools, as Zenith aspired to be. While student advocates still objected to the deal’s ban on class action lawsuits — which allow students to bring claims on behalf of all of those harmed in a similar way — they were pleased that at least students would be able to go to court.

But what no one told us is a critical point in the the new Everest/Zenith agreement: Students must agree to give up the right to a jury trial. The agreement reads, “By my signature, I acknowledge that I understand that both I and The School are irrevocably waiving rights to a trial by jury.” An additional “addendum” document reiterates, “IN THE EVENT THAT YOU ELECT TO BRING A CLAIM IN COURT, YOU AGREE TO WAIVE YOUR RIGHTS TO A JURY TRIAL AND THAT THE CLAIM SHALL BE SUBMITTED TO A JUDGE ONLY AND NOT TO A JURY.” Prohibiting students from presenting their claims to a jury takes away a major aspect of their right to sue in the first place. Yet that was never publicly explained when ECMC and the Department of Education announced the deal.

To make matters worse, it turns out that there is not just a ban on class actions, but a ban on “mass actions,” meaning the student must “agree not to combine or consolidate any Claims with those of other students.” Meaning students have no ability to combine claims at all, even with one other student, a strategy that makes it much easier to find lawyers who will see enough money in a case to make it worthwhile to pursue.

So the agreement still stacks the legal deck against students, whether they claim to have been misled by a recruiting pitch, or to have been assaulted by a campus employee, or any other dispute with the school.

I contacted Dave Hawn, ECMC’s CEO, about these troublesome provisions in the enrollment agreement and about the fact that they were not disclosed last week when the deal was announced.  His response today:

Our enrollment agreements are consistent with what we have said: We have eliminated binding, mandatory arbitration and every student now has the right to pursue litigation. If a student is not happy with his or her experience at Zenith, we will not stand in the way of that student taking an individual claim to court. This is a very significant change. Under our agreement, students have the option to first go through Zenith’s internal dispute resolution process. The student also has the choice to proceed with arbitration or to file a case in court, where it will be decided by a judge. As highly trained and impartial officers of the court, judges are able to assess the facts fully, fairly and expeditiously, and to reach decisions that are just and compliant with the law. This process fully protects the rights of students and establishes a process that is consistent and fair for all parties.

Another issue is ECMC’s ability to get in the business of lending to its own students. When the revised agreement was explained to the public earlier this month, government officials touted that ECMC had agreed not to make loans directly to students. Such institutional lending has been a major means by which Corinthian, ITT Tech, and other predatory for-profits have abused their own mostly low-income students and gotten themselves into deep trouble.  But when the actual agreement was unveiled, it turned out that ECMC had only agreed to forego such direct lending to students for a period of seven years. And this in fact represented a retreat from the agreement announced in November, in which ECMC agreed not to engage in such direct lending at all, but instead to give scholarships to students whose resources fell short.

Again, it gets worse.  In a new Everest/ Zenith enrollment agreement I have reviewed, students must acknowledge this: “I understand that third parties who may make private loans to me to finance my education may subsequently sell such loans and related receivables to The School or to an affiliate of The School.”  Meaning, if this agreement is actually implemented, that even before ECMC can get in the profitable business of lending directly to its own students, ECMC can start buying up its students’ loans from third parties. This suggests that ECMC could effectively circumvent the seven-year prohibition. It raises the specter of ECMC doing just what Corinthian did, and just what prompted the Consumer Financial Protection Bureau to sue Corinthian in the first place — arrange for a supposedly independent private loan company to make high-interest private loans to students, and then quickly buy up the loans.

In response to my question about this provision, Hawn writes:

Our enrollment agreement does not include a loan repurchase provision. Perhaps you are referring to Zenith’s work with the Consumer Financial Protection Bureau to provide about $480 million in debt relief for current Zenith students and former students of Corinthian Colleges who borrowed money from Corinthian’s Genesis loan program.

I’ve written back to Hawn for clarification, because I can’t square what he says with the new Zenith enrollment agreement I’ve read. I’m hopeful, based on Hawn’s statement, that the provision will be removed from all versions of the agreement and that ECMC will not be buying its students’ loans at this time.

As I previously reported, there is also evidence that a key student protection provision touted by the Department in the ECMC agreement — which would give students in failing Corinthian programs options to obtain refunds or transfer to other programs — is in danger of being implemented in a way that actually denies students a meaningful choice.

But even more important than the terms presented to students are the people in charge of guiding their educations. For example, in the context of non-profit colleges with a commitment to putting students first, institutional loans can often play a positive role. But in the area of personnel, the people being entrusted with such programs, ECMC has thus far failed to meet its pledges.

The day the deal was first announced, November 20, Hawn called me, and one thing he said was that “under the radar” the company had been “assembling a short list of qualified individuals” for management and that he was “optimistic about the caliber” of people he could hire.

What has ECMC achieved on this score since then?  ECMC has named one brand-new hire, but so far only a temporary one: Troy A. Stovall was named “interim president.” Stovall previously served two years as executive vice president and chief operating officer at Howard University, and before that six years as senior vice president of finance and operations at Jackson State in Mississippi. Stovall also previously worked at the management consultant firm McKinsey & Co. That is a distinguished record, but it’s not one with a strong academic / training focus, as is the case with many presidents of non-profit colleges. And, again, so far it’s just a temporary appointment.

So who else is involved in running Zenith? ECMC has made no announcements, but information has turned up on LinkedIn. There, Rick Simpson, until a few days ago the chief academic officer of Corinthian, the man who presided for seven years over the academic programs of Corinthian, which often abysmally failed its students, has shared the good news that he is now the chief academic officer of Zenith. Similarly, Rob Kenyon, the SVP Finance and Chief Accounting Officer for Corinthian for nine years, has updated his LinkedIn page to reflect that he now holds the same title at Zenith.

This doesn’t simply mean that senior Corinthian employees who were hanging around simply haven’t been shown the door yet. Because ECMC is not buying the company Corinthian Colleges, just 56 of its campuses, that means that these former Corinthian senior officials — those who were there during a decade of abuse of students and deception of regulators — have been affirmatively hired by ECMC to run the new Zenith operation. 

Hawn’s response:

We are making substantial policy and management changes for the Zenith schools. We have not and will not bring over any of the senior executive leadership from Corinthian Colleges to operate these schools. In order to ensure consistent and effective operations at our 53 campuses, we have retained some managers whose knowledge of the schools will help us implement the changes that are under way.

Finally, I asked Hawn about ECMC board member Gary Cook, the former CEO of a for-profit college company called the National Education Center; at least one of his campuses, in Baltimore, was shut down after state officials charged it with hiring unqualified teachers and misleading students about job placement. Cook’s company was sold in 1995 to another for-profit college corporation — named Corinthian Colleges. Was there any connection?

Hawn says:

Gary Cook has served on ECMC’s Board of Directors for 20 years and has made invaluable contributions to our organization throughout his tenure. He is a well-respected voice on U.S. competitiveness and the organizational integrity and regulation of U.S. industries, having published dozens of articles and books and testified before Congress on these issues. Mr. Cook was CEO National Education Center but has had no affiliation with Corinthian Colleges.

When it was announced last fall that ECMC was the government’s chosen purchaser for Corinthian, many critics questioned the character of the buying company, citing media investigations showing ECMC’s relentless, aggressive debt collection efforts aimed at students. I was concerned about that, but heard some sincerity in ECMC CEO Hawn’s outreach and professed commitment to truly help students build careers.  I was more focused on the toxic nature of the Corinthian programs being purchased, and wondered whether anyone could turn the operation around soon enough to help current students. I also was concerned about the lopsided terms of the deal, stacked against students, suggesting that the Department of Education saw Corinthian as too big to fail and thus would accept almost any agreement.

But the way that all of these anti-student provisions have crept into the agreement, without informing advocates for students, and the failure of ECMC thus far to install a new quality team, suggests that whatever ECMC believes it is doing, it doesn’t seem to understand, at least not yet, how to build trust.  Yet the Department of Education has put ECMC in charge of suddenly running the country’s largest non-profit career college, getting nearly 90 percent of its revenue from taxpayer dollars — more than $1 billion a year in recent years — and with some 50,000 current students and many more future students dependent on ECMC to guide their career training.

A Department of Education official I contacted declined to comment.

The public needs to watch ECMC / Zenith carefully to see that the company helps students, rather than hurt them, as Corinthian often did.  So far, not so good. In fundamental ways, the new boss seems the same as the old boss.

This article also appears on Huffington Post.