December 7, 2016

Corinthian Colleges Files Show Big Fees to Google, BET, Lead Generators

Kamala Harris

As eight years of zigzagging but ultimately valiant efforts by the Obama administration to protect students and taxpayers from predatory for-profit colleges comes to a close, new documents, released to us under the Freedom of Information Act, shed light on a key chapter in that saga: The 2015 demise of one of the most abusive companies in the industry, Corinthian Colleges.

Capitalizing on the lax regulatory environment created in the George W. Bush years, Corinthian, which operated schools branded Everest, Heald, and Wyotech, used deceptive advertising and recruiting pitches, enrolled students who would not benefit from their programs, charged sky-high prices, sold expensive private student loans, and misled government overseers, as it took as much as $1.76 billion annually in taxpayer-funded federal student aid. As a result, the company ruined the financial futures of countless students.

Aided by ace lawyers Toby Merrill and Eileen Connor from Harvard Law School’s Project on Predatory Student Lending, Republic Report in September 2015 filed a FOIA request with the U.S. Department of Education seeking, among other things, communications between the Department and Corinthian as the company started to collapse under the weight of government, media, and public scrutiny of its predatory practices. Last month we finally received from the Department a first tranche of records.

One document that stands out initially is a list of Corinthian vendor payments over a two-week period in July 2014, after the Department of Education increased financial oversight of the company. It suggests how much of Corinthian’s revenue was going to advertising and marketing: Google $1.6 million; BET $646,000 and MTV Networks $81,000; controversial lead generator Quinstreet $485,000; more lead generators including Education Dynamics $266,000, CollegeBound Networks $175,000, ClassesUSA $283,000, StudentScout $175,000, and AcademixDirect $154,000; Yahoo Search $171,000; Los Angeles CW TV outlet KTLA $116,000, and loads of other payments to broadcast stations; Jobs Weekly $265; and many, many more.

A Corinthian vendor of particular note, down for $91,000 over two weeks, is bait-and-switch marketer Neutron Interactive, which has used websites advertising alleged job listings to entice people to divulge their phone numbers, numbers that Neutron then sold to boiler room operations, such as Edu Trek / EdSoup (another Corinthian vendor, $14,000), that relentlessly hounded these job seekers, pressing them to enroll in for-profit colleges.

The target audience for all this Corinthian marketing and advertising, internal company documents show, was low-income people, especially single mothers of color, often with low self-esteem and desperate for a better future.

All these marketing payments covered just two weeks, out of total Corinthian two-week spending of $28,782,924.  Almost all of it was your tax money; a July 2014 Corinthian cash flow analysis, also provided under our FOIA request, shows that around 95% of Corinthian’s revenue was from federal student benefits, including Education, Pentagon, and VA aid.

So if you want to understand how a company getting $1.76 billion a year in taxpayer dollars could decide it had to wind down almost as soon as the Department of Education put restrictions on the flow of federal dollars, and then declare bankruptcy, claiming its debts far outstripped its assets, less than a year later, start here: The company needed to spend massively on marketing to recruit enough new students to its poor-value programs. (Of course, in the end, many of the vendors listed in the Corinthian document are now seeking payment in the bankruptcy proceeding.)  Oh, and Corinthian also spent on executive salaries, used to buy things like possibly the finest home in the Intermountain West, with a Children’s Art Barn.

Corinthian is now out of business, sort of — many of its old campuses are now operated, in questionable fashion, by the debt collection company ECMC. Another predatory giant, ITT Tech, shut down and declared bankruptcy in September. But many other companies using comparable business models — low spending on student instruction, and big spending on marketing and recruiting, aimed at low-income Americans — carry on, getting most of their revenue from taxpayers through federal student grants and loans. These companies include EDMC, Bridgepoint, Kaplan, and the University of Phoenix, all of which have faced multiple law enforcement probes and lawsuits in recent years. It would be good if we could get a look at their weekly spending, as well.

This article also appears on Huffington Post.