The new owner of a struggling chain of for-profit college campuses agreed to concessions demanded by the US government that would forgive student debt.
Federal officials approved the sale, valued at $24 million, of 50 Corinthian Colleges, Inc. campuses to ECMC Group, which included $480 million in forgiveness of private student loans. Loans will be cut by 40% of the principal balance because of a deal with the Consumer Financial Protection Bureau (CFPB). If a student's credit was damaged in connection with the loan, he or she will have that negative information removed, according to Stephanie Gleason and Alan Zibel, reporting for The Wall Street Journal.
Both ECMC of Oakdale, Minnesota and Corinthian of Santa Ana, California will pay an upfront amount of $12 million to the Department of Education to begin the loan write-downs. It is also possible that the department would receive $17.25 million from ECMC over the next seven years as part of an earnings-sharing agreement.
In order to avoid some of the problems faced by its predecessor, Zenith Education Group, the non-profit unit which will take over the colleges, has agreed to hire an independent monitor of company practices such as recruiting students, overseeing recruiters, and others. The interim president of Zenith is former Howard University official Troy Stovall.
For the 33,000 students who will be enrolled, tuition will be cut by 20% and a 20% rebate will be given to current students when they complete their programs.
ECMC intends to guarantee federal student loans and aims to stop burdening students with debt they cannot carry. The company also vows not to sue or threaten borrowers with outstanding loans made through Corinthian, and will not offer their own private student loans for seven years.
ECMC is a student debt collection company, not a "teaching" company, so many detractors have resisted the sale since it was announced in November. Corinthian, which runs Everest Institute, Wyotech, and Heald College, has been criticized as the for-profit education worst practices poster child because of its high level of loan defaults and questionable programs. The Washington Post's Danielle Douglas-Gabriel reports allegations of false advertising and deceptive record-keeping on the part of the company. Last year Corinthian lost its federal funding, which forced the company to sell.
ECMC, on the other hand, plans to create an $87 million grant program initiated to offer up to $10,000 a year to low-income students for whom financial aid does not cover all school expenses. CFPB is suing Corinthian for $500 million for high interest rates, inflated tuitions, and receiving a part of the lender's fees. The education department is giving nearly two-thirds of the $12 million it received from ECMC to cover penalties that could arise from the ongoing Corinthian probe.
For-profit schools have long been criticized for aggressive recruiting, expensive programs, low job placement rates, and heavy reliance on federal student loan proceeds as sometimes up to 90% of their revenue, writes Jeff Manning of The Oregonian.
"Today, we begin delivering on our promise to transform the Everest and WyoTech schools we have acquired into first-rate career colleges where success is measured not by how many students we enroll, but by how many students complete their programs and get fulfilling jobs when they graduate," said David Hawn, president and CEO of ECMC Group.
Heald's campus is in Northeast Portland, Oregon. It was not purchased by Zenith, so its future is uncertain.