For-profit schools are often in the news, especially when discussing student loan debt.  It’s a statistical truth that their students have a higher rate of default, a higher drop-out rate, and more often require private student loans.  These students are also more often sub-prime borrowers.  Lets take a look at the two biggies.

Corinthian Colleges

Owner of Everest Institute, Everest College, WyoTech and Heald brands, Corinthian claims it may be heading towards Bankruptcy.  Why?  Because the Department of Education requested documents.  OK, that’s over simplified.  The real deal is that ED requested documents.  Corinthian is taking a bit longer to comply than expected.  ED, in response, has placed a 21-day hold on all federal aid.  Corinthian, in response, states that this delay is screwing with its cash flow which could cause it to file for bankruptcy.  For more on this, check out Huffington Posts’s first and second story.

And then an update comes in while drafting this.  According to the Wall Street Journal and Huffington Post, a deal has been reached with DOJ to allow operations to continue while Corinthian figures out what to do.  Details will be released on July 1st.

Would it be a bad thing if they file BK?  Based on their reputation, no.  But it would cause a huge mess for the 72,000 enrolled students.  While the federal loans could be discharged through administrative process, private loans could be an issue; there is no automatic discharge for these loans if a school closes.  I’d expect a few class actions against the lenders who refuse to budge.

EDMC

Owner of Argosy University, Brown Mackie Colleges, South University, and the all to well known Art Institutes, is fighting for its life in a whistle blower case that dates back to 2007.  DOJ joined in 2011 along with a few State AG’s.  In May, 2014, the Court ruled that documented statistics is not enough to support a dismissal, allowing the case to move along.  The case is United States ex rel. Washington et al. v. Education Management Corp. et al., Civil No.07-461 (W.D. Pa.).

This case is about alleges recruiters – admissions officers – were paid based on enrollment, which is illegal.  The fall out is unforeseen, though it is costing the school a significant amount of money that could very well cause the school to file bankruptcy.  Bad thing?  Probably not if you ask any of their graduates.

Private Lenders

An interesting fall out to either of these cases will occur for private student loan lenders.  An overwhelming amount of for-profit school students require private loans to pay the unsightly tuition.  If either of these schools close, a huge chunk of the private student loan prospect pool will disappear.  That’s not a bad thing from where I stand.

Warning

One can only hope that the smaller for-profit schools take note of what is going on.  No school wants to be in the cross hairs of an investigation.  While I think it is a contradiction for a school to be for-profit, it is possible to follow the laws and be successful.    When all of this is over, perhaps Congress can focus on non-profit schools and their equally insane pricing.  After all, if you deal with the price issue (sickness), the loan issues (symptom) start to work themselves out.