What the Washington Post Has Not Disclosed…

In recent weeks, The Washington Post has come under much-deserved criticism for using both its news and editorial pages to lobby against regulations the Obama administration has proposed that would strengthen the government’s oversight over for-profit colleges.

In defending themselves, Post executives and editors say that the newspaper has been fully upfront about its ties to Kaplan Inc., one of the largest publicly-traded chains of for-profit colleges in the country. Kaplan, in fact, accounts for about 60 percent of the newspaper company’s total revenue.  As a result, any crackdown on the proprietary school sector could be a significant blow to the newspaper’s bottom line (which would explain why Donald Graham, the Post’s chairman and CEO, has been making the rounds on Capitol Hill — a fact first reported by Inside Higher Ed.)

This line of defense recently received the backing from, of all people, the newspaper’s ethical cop — the ombudsman Andrew Alexander. In a column last month entitled “From Kaplan to Buffet, Post gets it right on transparency,” Alexander defended the Post, saying that the newspaper “has consistently disclosed the Kaplan connection.”

“I’ve often criticized The Post for insufficient transparency on everything from news sources to refusing to share its ethics policies with readers,” he wrote. “But on its commitment to disclose self-interest, praise is deserved.”

With all due respect, we at Higher Ed Watch have to disagree. The Washington Post has not, in fact, been completely transparent about its ties to the for-profit higher education industry. The newspaper has time and again failed to disclose the substantial stake it has in Corinthian Colleges, a giant for-profit higher education company that doesn’t exactly have a stellar reputation, even among those in the industry. By all indications, Corinthian, which serves nearly 70,000 students at more than 100 colleges in the United States and Canada, appears to be one of the companies most in jeopardy if the administration moves forward with its proposed “Gainful Employment” regulations because of the substantial amount of debt its students take on.

According to data from Bloomberg, the Post owns approximately seven million shares of Corinthian Colleges’ stock, giving it about an eight percent ownership stake in the company. The newspaper purchased the stock in early 2008, saying that the for-profit college company represented “an attractive business opportunity.”

The Post’s stock purchase came less than six months after the California Attorney General reached a $6.5-million settlement with Corinthian over a lawsuit he had filed accusing the company of engaging in false advertising and unlawful business practices. The lawsuit charged Corinthian with misleading prospective students about its schools’ job placement rates and the starting salaries of their graduates; running 11 sub-standard programs, and falsifying records provided to the government. Corinthian did not admit to any wrongdoing.

Since then, various media reports (including an article I wrote for the Washington Monthly last year) have accused the company of continuing to engage in misleading recruiting tactics. The Government Accountability Office added fuel to the fire when it revealed last month that it had conducted an undercover investigation in which it found “fraudulent, deceptive, or otherwise questionable marketing practices” at every one of the 15 for-profit schools it visited, including two of Corinthian’s Everest College campuses (in Arizona and Texas).

This is bad enough. But Corinthian has also been accused of putting the low-income and working class students at its schools in harm’s way, by loading them up with federal and high-cost private student loan debt that many of them are unlikely to ever be able to repay. The following data appears to bear these concerns out:

• Default Rates

Corinthian recently revealed to investors that it expects “a majority” of its schools to have three-year default rates above 30 percent for borrowers who went into repayment in fiscal year 2009. In other words, the company projects that about a third of the schools’ former student who entered repayment on their federal student loans in the 2009 fiscal year (beginning in Oct. 2008) will go into default within three years. These high rates are all the more remarkable considering the aggressive effort that Corinthian has been making to try to “manage” its default rates. The company has been upfront about how it has been trying to push high-risk borrowers to get deferments or forbearances on their loans, or to take advantage of the Income Based Repayment program, so that they can’t default during the three-year window when defaults will be counted against the schools by the Education Department.

• Repayment Rates

The Education Department released data this summer showing that only 24 percent of students who left Corinthian schools in the last four years had paid down any principal on their federal student loans as of September 2009. In other words, about three quarters of students who left these institutions during this period of time had not paid enough to reduce their total loan debt by even a dollar. Under the administration’s “Gainful Employment” proposal, for-profit college programs with repayment rates under 35 percent could be in serious danger of having their eligibility for federal student aid revoked.

Of all of Corinthian’s former students, those who attended the company’s Everest College campuses had the most trouble handling their debt. According to the Department, 33 of the company’s 86 Everest locations had repayment rates of less than 20 percent and five had rates below 10 percent. The Everest Institute in Detroit, for example, had a rate of just 7 percent.

• Private Loan Default Rates

Corinthian Colleges has told investors that it expects nearly 60 percent of the $150 million in sub-prime private loans it is making to students this year will go into default. For the company, losses on these “institutional loans” are more than offset by the federal financial aid dollars these students bring in. But for the students, defaulting on these high-cost loans could lead to a spiral of debt that could literally ruin their lives.

To be fair to the Washington Post, the editorial it ran last month opposing the Obama administration’s proposed Gainful Employment rules noted that its parent company owned ” Kaplan University and other for-profit schools of higher education that, according to company officials, could be harmed by the proposed regulations.” [Emphasis added]

But the editors didn’t specifically mention Corinthian. Given the for-profit higher education company’s track record, can you blame them?