How we can help avoid crushing student loan debt

Corinthian Colleges Inc. which operates 107 campuses across the country, has become a cautionary tale about for-profit education. The company, which is based in Santa Ana, has collapsed: It’s agreed to shut 12 campuses and sell the rest under an agreement with the U.S. Department of Education. In business, this is generally called an orderly transition. But the disorder in this situation goes deep.

Corinthian Colleges, Inc., is a for-profit company. It received $1.4 billion in government loans last year, representing up to nearly 90 percent of its revenue. It also has defended itself in court for years against charges that it has misled students. Attorneys general in several states, including California, have launched investigations into the company.

Even after Corinthian told investors of its plans to close or sell its campuses on June 19 of this year, Attorney General Kamala Harris filed additional charges against the company, accusing it of violating laws about false advertising and unfair competition. About a third of the colleges’ 72,000 students are in California, and Harris accused it of continuing to use websites and advertising that contained misleading statements.

(Under the “About CCI” section on its website, Corinthian still has cheerful public-relations language like, “We put students first” and “Our mission is to help students prepare for careers in demand or to advance in their chosen field.”)

Corinthian, not surprisingly, disagrees. “We’re providing disclosures to all of our students that have been approved by the Department of Education,” said spokesman Kent Jenkins. Jenkins said that the company was still accepting new students, but that those students also had to sign disclosures about what was going on. “None of (the AG’s) charges are true,” Jenkins said.

The U.S. Department of Education has been cracking down on for-profit colleges, alarmed at their high prices and dubious job prospects for students who attend them. Many of these for-profit colleges rely on federal student aid and attract lower-income students — a recipe for high default rates and, the U.S. Department of Education fears, wasted resources.

The department is right to be worried. For example, Corinthian has collapsed, but its investors can salvage something from all of this. At least some of Corinthian’s assets will likely be reconstituted under a new name.

Many of the U.S. students won’t be so lucky. Unfortunately, a quirk in federal law means that only a small portion of them will get their debt forgiven when their Corinthian campus shuts down. (None of the campuses shutting down is in California.) And because all students except the most recent graduates are obligated to pay off student loans to shuttered schools within 120 days of closure, hundreds of thousands of students are going to be left with near-useless degrees and loans they can’t discharge, even under bankruptcy.

The U.S. Department of Education can’t abandon these students, even as it rightly demands better outcomes from for-profit colleges.

There’s a role for the state here, too. Community colleges are, on average, far cheaper than for-profit colleges. There’s also little doubt about their effectiveness: Students who earn a community college degree or certificate nearly double their earnings within three years.

But budget cuts over the past decade have made it more and more difficult for the community colleges to fulfill their mission. Local community colleges are overwhelmed and oversubscribed. It’s easy to understand why students are attracted to for-profit colleges, which are generally convenient and easily accessible.

California must reinvest in its community colleges. It’s the cheapest and best solution for students — and, as the Corinthian Colleges saga is showing, it’s the best and cheapest solution for taxpayers, too.