Here’s What ECMC Needs to Do For Students in the Corinthian Colleges Deal

After several weeks of criticism (including from New America), the U.S. Department of Education issued a defense of its decision to allow most of the struggling Corinthian Colleges chain to be bought by the parent company of the Educational Credit Management Corporation, a nonprofit agency that makes it money off collecting from and working with defaulted student loan borrowers.

In a blog posted two weeks ago, Undersecretary Ted Mitchell defended the sale, calling it a “bold new plan to protect students.” He also gave several reasons why he thinks the deal will be beneficial to students. Among these are a 20 percent tuition cut, right-sizing enrollment to make it better reflect labor market needs, closing at least one bad program, and a commitment to transparency. Longer descriptions of these items can all be found in the deal’s term sheet. The post also acknowledges many of the concerns about ECMC’s lack of experience running a college and what it would take to turn around the former Corinthian campuses.

None of the planned changes cited by Mitchell are bad. They’re just not enough. Corinthian is a deeply troubled enterprise and is almost certainly the worst publicly traded higher education company. And ECMC is a newbie that has just bought itself the educational equivalent of trying to turn McDonald’s into the Cheesecake Factory after the golden arches had just caused massive cases of food poisoning nationwide.

For any deal to be a good one for students, it would need to do the following.

Provide Opportunities for a Fresh Start

The Higher Education Act allows students to discharge their federal loans if their college closed before they finished their program and they were unable to transfer elsewhere. But since the Corinthian campuses would not close under ECMC, students would be denied that fresh start option.

Because the discharge rules are tied only to close of campuses, the inability to get rid of loans will extend to students in any program voluntarily shut down by ECMC, such as the associate degree in criminal justice. They might be able to refund their money, but only if: (1) enough of the $8 million set aside for that purpose remains; (2) they are in a business, criminal justice, or paralegal program; and (3) their program has a placement rate below 66 percent. And to be clear, while some Corinthian students may want to finish their programs, others are looking for a restart.

The first step in making a better deal for students is finding creative ways to provide a fresh start to borrowers who want one. Here’s one option. ECMC is promising to meet with each student within seven days of the deal closing. That discussion should include a review of debt levels and an option to pursue a discharge. If the student agrees, ECMC should transfer the student’s enrollment to one of the campuses where ECMC is agreeing to oversee its closure (such as Cross Lanes in West Virginia). When that campus actually closes, the student would then get a loan discharge. ECMC should offer a similar option to any student in a program it closes after the initial discussion.

The Department can play a role here too by using its authority to extend the 120 day window for a loan discharge on the grounds that the Corinthian situation is an exceptional circumstance.

More Programs Need to Go

The criminal justice program that ECMC is agreeing to close looks terrible under available data: 32 percent of borrowers default on their loans and typical debt is nearly 15 percent of annual earnings for graduates, who make just $20,722.

But the criminal justice degree is not an outlier. There are many other programs at the Corinthian campuses ECMC is buying that look nearly identical.

The programs shown above cannot be salvaged with a 20 percent tuition cut. Some, like the medical assisting ones, have such low earnings for graduates that it’s questionable whether any price that necessitates student debt to pay for it is acceptable.

Given that the criminal justice program is viewed as too bad of a deal to continue, the rest of these programs should be stopped too.

Limit Online-only to Highest Level Credentials

Online learning presents a number of great opportunities. If done well it can allow students to work in self-paced environments or supplement in-person instruction to increase learning. But for-profit colleges like Capella University that seem to do well with online-only instruction have admissions standards that restrict their programs to adults who show they have the experience, skills and ability to succeed—a different profile from the types of students Corinthian recruited.

Recognizing that the bulk of Corinthian’s student body does not align with the characteristics needed to thrive in entirely online environments, ECMC should dramatically pare back these programs to only offerings at the bachelor’s degree level or higher. Scaling back online-only programs has the added advantage of making it easier to align programs to labor market needs, since a program offered entirely via distance education could be enrolling students from anywhere, including places that may not need more individuals trained in that field.

Keep a Tight Leash on Recruitment

The promise to right-size programs suggests that ECMC may not plan to grow immediately. But when it does try to get bigger it will still face the challenge of convincing students to come to a college that lacks positive brand recognition. Though a lack of investors should lessen the demands for growth and discourage the worst abuses seen at Corinthian, ECMC will still struggle to attract students absent high-pressure tactics.

ECMC should do several things to ensure ethical recruitment practices. First, there must be more transparency. Basic information on the Everest and WyoTech websites like the cost of programs, instructors, the availability of certain licensures, and other crucial information is either buried on a hard-to-find disclosure or requires filling out a form to talk to a recruitment agent. All of these data elements must be made public and much more easily findable.

Second, ECMC should record all admissions calls and turn them over to its chosen external monitor, the Department, and states’ attorneys general to verify that recruiters are acting properly. Third, ECMC should set standards for the number of times it will contact a student in a given day and week. And every call should include the option for a student to definitively opt out of any future contact. Fourth, ECMC should agree to no longer solicit any student leads from third parties, since the way many of these entities go about finding people can often be through questionable means.

Greater Generosity for Financial Aid

ECMC has already agreed to not offer any institutional loan programs and to use grant aid to fill in any gap between the price charged and a student’s federal grants and loans. That seems generous but does not go far enough. There may be students who are well into their programs and have already taken on more debt than seems reasonable given the credential sought. Many Corinthian programs also have such poor results that even borrowing at the allowable limits is too much debt. For example, an independent student pursuing an associate degree in medical assisting could still end up with $20,000 worth of debt, or about $5,000 more than their likely starting salary.

Addressing the debt problem requires paying more attention to the context in which a student borrows. ECMC should review each student’s debt levels compared to the demonstrated earnings information for the program available through gainful employment. If the student appears to already have so much debt that not passing the debt-to-earnings test is all but assured, ECMC should either reduce the price charged or provide sufficient grant aid so that the student does not have to take on any additional loan debt. This idea has come up before—Marc Jerome from the for-profit Monroe College suggested a similar version during negotiations on the gainful employment rule, though is focused only on reducing price or capping debt, not additional grant aid. This review and cap structure should start with existing students and also be used to limit debt for new students from the start of their time in college.

Smaller and Safer

In any rational industry, a company like Corinthian Colleges would go bankrupt and disappear. But skittishness around disrupting students’ education and political fallout from having 39,000 individuals leave college has left us in a place where the Department now views an inexperienced debt collector as a better alternative than  closure. Having ECMC buy most of Corinthian solves the perceived immediate disruption and political concerns. It also creates longer-term risk of what happens to the students who stay in the schools and the new ones that join them. If we’re serious about keeping those individuals in mind then ECMC and the Department must do more to protect them.