Kamala D. Harris, the California Attorney General who is leading a high-profile lawsuit against the for-profit Corinthian Colleges school system, appears to be steering all 23 Corinthian-owned campuses in the state towards closing down in the coming months.
The size and scope of the potential shutdown, involving well over 20,000 students at Everest, Wyotech, and Heald Colleges in California, would be unprecedented in the state, experts say, and could entail millions of dollars in debt forgiveness for thousands of students. California is home to almost a third of all of Corinthian's current students.
Since the for-profit college giant warned that it was teetering on the edge of bankruptcy this June, the federal government — despite the fact that it has a lawsuit and several investigations pending against the company — has done everything it can to prop up Corinthian's campuses and help secure a buyer for the schools. From the Education Department's perspective, keeping Corinthian's campuses open is a better alternative than disrupting the educations of its roughly 70,000 students nationwide.
But the California attorney general office is making a different calculation, also in the name of protecting both current and former students.
A source familiar with the California attorney general's office told BuzzFeed News that the attorney general will not release a potential buyer from legal liability under almost any circumstance — a condition that many believe would be necessary to sell off Corinthian's campuses in the state. As a result, it is looking increasingly likely that 20,000-plus students in California who attend schools owned by Corinthian Colleges will see their campuses shut down altogether sometime next year, possibly without being able to finish their educations.
"We will continue to act aggressively in the best interest of the many Corinthian students in California who have suffered as a result of Corinthian's alleged wrongdoing, and to pursue any and all relief and restitution for those students," said David Beltran, a spokesman for the attorney general's office, in a statement.
The state's lawsuit, similar to those filed in other states and by the federal government, alleges that Corinthian consistently misled students and falsified job placement records, unfairly leading students into tens of thousands of dollars of debt. Corinthian has consistently denied any wrongdoing in the face of legal action.
Facing financial distress, Corinthian was given six months to find a buyer for all of its college campuses as part of the shutdown agreement it reached with the Department of Education in July. While 56 Corinthian campuses have been bought by a nonprofit, ECMC Group, with the department's blessing, the 23 schools in California have been untouched, essentially left in limbo. That's largely because Harris' office has refused to release any potential buyer of the campuses from liability — making the schools extremely unattractive to ECMC and any other buyers, experts say, because if California wins its suit against Corinthian, the buyer could be on the hook for millions of dollars in restitution or damages.
"If the AG is not willing to release the liability of any buyer, it's unlikely that [the schools] are going to be sold," said Robyn Smith, an attorney with the National Consumer Law Center. "It's possible, but I don't see that liability something a buyer would be willing to take on."
That was the case for ECMC, the nonprofit that bought the majority of Corinthian's schools. The company told the LA Times that it did not buy the California campuses because of concerns about legal liability in the state.
The source familiar with the attorney general's office, who declined to be named because of the state's pending lawsuit, said that the office's default position is not to release any party from liability before a case has been adjudicated. The source outlined a set of extremely rigorous standards that the office has for releasing liability, none of which are likely to be met in the case of Corinthian, especially within the short timeframe that remains. The attorney general will not release a buyer from liability unless the sale includes provisions for significant relief for both current and former students and there are strict structures of enforcement in place to ensure no future abuses occur, the source said.
Unlike in California, the federal government, including the Education Department, the Department of Justice, and the Consumer Financial Protection Bureau, appear to have released ECMC from legal liability, according to statements from ECMC's CEO. If no buyer was found and all of Corinthian's campuses were forced to close, the government could have lost more than $1 billion because it would have been compelled to offer the school's 70,000 students forgiveness on their federal loans.
With the Education Department agreement set to expire in a matter of weeks, it is now looking all but certain that Corinthian's California campuses will soon be shut down. Beyond the terms of the agreement, near-bankrupt Corinthian has little money to continue operating the schools, and an Education Department official indicated that the federal government is unwilling to leave the schools open indefinitely. There are 11 Everest College campuses in California, 10 campuses of another Corinthian-owned trade school, Heald College, and two campuses of Wyotech College.
All three schools are covered in California's suit and are likely to face some form of shutdown — even Heald College, which was was initially considered Corinthian's most attractive asset. No buyers have come forward thus far for the trade school, which has all but three of its campuses located in California.
It is unclear exactly what form the shutdown will take if no buyers step forward in the next three weeks. The most likely scenario is that the California campuses will be put in a process called "teach-out," where the schools stop enrolling new students and allow current students to finish out their educations. In that situation, either Corinthian would continue to operate the school throughout the teachout process, or a third party would temporarily take over the campuses or individual programs within the campuses.
But there is also a chance that the California schools, or some portion of them, would shut down immediately. That would happen if Corinthian does not have the means to operate the campuses through teach-out and declares bankruptcy, said Smith, the National Consumer Law Center attorney. "There could suddenly be padlocks on the doors," Smith said.
If the California campuses close, rather than being sold off, current students in the state — except for those at online campuses, which are based elsewhere — will be eligible to have their federal student loan debt cancelled altogether. They would also be eligible for relief on any private loans, which would likely be drawn from California funds, Smith said.
Molly Hensley-Clancy is a business reporter for BuzzFeed News and is based in Washington, DC. She covers the intersection of business and education.
Contact Molly Hensley-Clancy at email@example.com.
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