January 31, 2018

New Report Underscores Corinthian-Zenith College Debacle- and DeVos Disgrace


New Report Underscores Corinthian-Zenith College Debacle- and DeVos Disgrace

Attorney Clark Kent Ervin, the independent monitor for Zenith Education, a chain of career colleges, has just released his final report. Zenith was an experiment, pursued by the Department of Education, to see if a large predatory for-profit college chain that ruined many students’ lives could be purchased by a non-profit group with no experience running colleges and soon transformed into a career education oasis. As Ervin’s final report confirms, it didn’t exactly work out.

The whole sordid tale should have implications for decisions by Trump Secretary of Education Betsy DeVos — except it’s clear from her first year in office that she listens only to owners and lobbyists from predatory colleges and disregards the interests of students and taxpayers.

Background: In the final two years of the Obama Administration, as the Department of Education and White House at last began implementing responsible measures to contain the national scandal of waste, fraud, and abuse in the for-profit college industry, it made a notable error: It treated the schools operated by the collapsing Corinthian Colleges chain as too big to fail. The Department approved the sale of many of Corinthian’s Everest and Wyotech schools to a non-profit Minnesota-based student loan servicing operation called ECMC. That company had never run a school, and it proceeded to hire key players from the Corinthian management team, even though numerous media, congressional, and law enforcement investigations had exposed that Corinthian had repeatedly engaged in deceptive recruiting practices, gave false information to government overseers, and left former students across the country without careers and buried in student loan debt.

In just one of the many awful missteps that has occurred since, the Department required ECMC, which named its new education division Zenith, to submit to reviews by an independent monitor, but then the Department approved as the monitor a law firm whose attorneys had represented Corinthian and many others in the for-profit college industry, and allowed Zenith and that law firm to maintain a cozy, confidential attorney-client relationship.

After media investigations exposed the inadequacy of that arrangement, the Department required Zenith to make a change, and a serious monitor relationship finally was established. Mr. Ervin is a person of strong integrity. And he clearly hasn’t been impressed by what he’s seen at Zenith, as his past reports demonstrated.

Here are some of the latest problems Ervin notes at Zenith in this final report:

(1) Failure to keep the monitor informed.

“[T]here have been three momentous developments within the span of just a few months. The Monitor learned about two of them from press reports, and the other from the Department (which had been given little notice itself).”  These were the name change of colleges from Everest to Alterius, the seemingly abrupt resignation of CEO Peter Taylor, after only a year, and,  “[m]ost momentous of all,” Zenith’s November 8, 2017, decision to close all but three of its remaining 24 campuses.

That Zenith didn’t tell the Department-mandated monitor about any of the these developments tells us all we need to know about the commitment of this enterprise to meet its obligations. But there’s more.

(2) A shaky strategy.

Ervin notes that Zenith is now claiming that it can make its three remaining campuses, in Tampa, Houston, and Norcross, Georgia, a success, but he has doubts: “Given that in the past two years its parent, ECMC Group, purportedly invested more than half a billion dollars cash in Zenith’s schools, and the associated ECMC Foundation invested $21 million more… one can wonder whether the few Zenith schools that will remain will fare significantly better than the many that are being closed.”

(3) Continued deceptive recruiting.

Looking at a small sample of admissions staff calls to students, Ervin still finds traces of the deceptive recruiting practices that were a Corinthian hallmark. One “prospective applicant was talked into applying for a paralegal program and then assured that she could work as a paralegal independently, without being supervised by an attorney. As evidence, the admissions representative cited the case of a friend of hers who had her own ‘storefront’ as a paralegal and who prepared legal documents on her own….”

(4) Undocumented claims and failure to inform the public.

In its November 8 statement announcing it was closing most of its campuses, Zenith made claims regarding steps it had taken to enhance its curriculum, make attendance more affordable, and increase completion rates and job placement rates. But when Ervin asked Zenith to document these claims, Zenith claimed that Ervin had no business asking because the statement was not related to Zenith’s marketing activities and because it was not “pushed out to media outlets.”

Ervin explains, “Zenith confirmed that it did not make a public announcement that it was closing most of its schools. The press found out about this development on its own, and the statement was issued after the fact as a means of addressing questions. Conceding for the sake of argument that the statement was not, strictly speaking, a press release, that itself raises a different concern. Doesn’t the closure of most of Zenith’s schools warrant what Zenith defines as a press release, namely, a proactive public announcement that is actively and broadly disseminated?” Ervin notes that Zenith issued press releases on matters “far less momentous,” such as a new scholarship program.

It seems clear from his discussion that Ervin thinks Zenith’s positions are ridiculous.

(5) Misleading ads.

Ervin expressly calls the latest Alterius ads “misleading.” He cites language such as,  “Be ready to start your new career in as little as 10 months,” which he says “suggests that a job will be waiting for the schools’ graduates when they conclude their studies.”

(6) Concealed disclosures.

Under a component of the federal “gainful employment” rule — a regulation aimed at curbing predatory practices — Zenith has been required to make website disclosures about its results for students. The Devos Department made even more clear with new draft rules released last week that the Secretary is trashing the gainful employment rule, but even she seems prepared to keep at least a watered-down version of the disclosure requirements. Zenith is bound to comply with the disclosure provisions now, but Ervin makes clear that he doesn’t think the company has been.

(7) Ignoring monitor recommendations.

Ervin writes, “The Monitor has inquired which, if any, of his numerous recommendations and suggestions concerning [Zenith written] materials have been implemented. The reply was that Zenith has yet to put this information ‘into a trackable spreadsheet or 7 other medium.’ As far as the Monitor knows, then, none of his recommendations has been implemented.”

Ervin concludes by expressing concern that things will get even worse at Zenith campuses: “Given the inevitable cost pressures and the fact that these schools will be ceasing operations in the not too distant future, there will doubtless be a temptation to cut corners as the closing dates near.”

Ervin indicates that he will be filing a supplement to his final report very shortly, covering the most recent Zenith activity.

What are the implications of Ervin’s final report, and the Zenith experience, for the future of career education? It’s hard to take toxic assets and turn them into a positive experience for students, or an effective investment for taxpayers. Yet Betsy DeVos, amid a series of decisions that have turned over policy to the worst-behaving colleges, has approved the sale of the predatory EDMC chain to the faith-oriented non-profit Dream Center, which has no experience running colleges and has brought into the deal people associated with troubled predatory schools. She’s also okayed the sale of predatory Kaplan University from the Graham Holdings operation to Indiana’s public Purdue University, in a deal that will allow Graham to keep making big money off the school. These deals will allow the schools to evade the regulatory requirements and stigma of for-profit schools, and potentially to earn big revenues in a climate where the Education Department has returned to worrying only about the rights of colleges to an unlimited streams of taxpayer dollars, and blatantly abandoned concerns about the welfare of students.

UPDATE 02-01-18:

Zenith has responded to my request for a response, and this is it:

Zenith Education Group Statement Regarding Report of Independent Monitor July 2017 – December 2017

We appreciate the time and energy contributed by the independent monitor in assessing Zenith’s compliance under our agreement with the Department of Education. However, we are concerned that the monitor’s most recent report contains several apparent misunderstandings and, in some cases, misstatements of Zenith’s business practices and regulatory requirements.

For example, the monitor argues that Zenith’s homepage fails to comply with a Department of Education regulatory guidance [in the gainful employment rule], the enforcement of which has been delayed and thus does not apply to Zenith. Additionally, the monitor’s report mischaracterizes the nature of a teach out, which allows students to complete their entire educational program, not just specific courses, before a campus is closed.

The monitor also makes a number of misleading inferences regarding Zenith’s recent decisions to rebrand our Everest campuses to Altierus, as well as to teach out a number of those campuses. We are proud of the activities we undertook at the acquired campuses over the past three years, and all students at our teach-out campuses have the opportunity to complete their educational programs.

Since acquiring 56 campuses facing certain and immediate closure in 2015, we made significant investments in student success, including contributing $500 million in cash that resulted in savings for American taxpayers of an estimated $435 million in potential closed school losses, and facilitated the discharge of more than $480 million of private student debt, sparing students the burden of repayment. In total, we graduated more than 15,000 students in the programs we continued after we acquired the schools and achieved a 73.2 percent success rate in placing those students in jobs in their sector.

Zenith remains fully committed to our mission of student success at our teach-out campuses and our remaining Altierus campuses in Tampa, Bissonnet and Norcross, where we are doubling down on our focus on the most effective initiatives and innovative ideas that provide underserved students with the best opportunities for career success.

UPDATE 02-02-18:

Two of my higher education policy expert colleagues had this response to the Zenith statement above, and I fully agree:

Zenith’s response is patently incorrect.  Among other things, the GE [gainful employment] disclosure requirements are still in effect and apply to Zenith. If there were any doubt, the Trump Administration announced two weeks ago that “Institutions will have until April 6, 2018 to update disclosures for each of their Gainful Employment (GE) programs, using the 2018 GE Disclosure Template,” and it updated the Dept’s Q&A on the disclosures last year. Moreover, the standard to which Zenith should be held re GE is not “regulatory requirements” but rather the fact that Zenith agreed as a condition of the purchase agreement to fully comply with the existing GE rule.

In addition, the idea that Zenith is taking credit for the $480m in private loan discharges secured by the CFPB and AGs is beyond absurd.