The US Department of Education federal building. (Photo: Chris Zubak-Skees / Flickr)

Truthout needs your help to publish grassroots investigative journalism and to share visions for a brighter future. Contribute now by clicking here!

We hadn’t reported much on the horrorshow of for-profit Corinthian Colleges’ creative and varied ways of ripping off its students simply because the scandal seemed to be ably covered elsewhere. Par for the course for many for-profit colleges, its students had taken on hefty amounts to attend when they were unlikely to land jobs that made that much borrowing a sensible proposition. But Corinthian Colleges departed substantially from the already-dubious norms of the debt-peddaling practices of the for-profit educational-industial complex. From Distance Education:

Faced with dropping enrollment numbers as well as investigations from the Consumer Financial Protection Bureau, attorneys general in multiple states, and regulators from the Department of Education, Corinthian Colleges is on the verge of declaring bankruptcy. The charges against it include presenting false job placement data to prospective students in its marketing, altering student grades and attendance records, and questionable recruitment and student loan advisory practices. The federal government recently announced it would withhold some student aid from the company, causing a delay that the company claims necessitates the bankruptcy.

Corinthian Colleges looked to be on the way to a well-deserved demise as a result of CFPB and Department of Education interventions, as well as investigations and lawsuits by state attorneys general in twenty states along with the SEC. That seemed to imply that students were going to come out as well as they could given the abuses they’d suffered.

It turns out we were naive. After all, this is America, where debtors routinely get the short end of the stick even when the lender engaged in fraud.

The Department of Education moved, in what appeared at first to be an effort to shut down Corinthian Colleges. It demanded that the education complex produce records on its job placement rate among students. When Corinthian Colleges failed to comply, it instituted a 21-day waiting period on the company being able to access federal student aid funding. That is what precipitated a cash flow crisis and the bankruptcy threat mentioned above.

But the DoE action may instead have been to put the agency out in front of the other legal actions and investigations, particularly that of the CFPB, so as to get control of the situation. As WSWS notes:

Not uncharacteristically, the Obama administration responded with an immediate $16 million life preserver, with a total of $35 million pledged in the form of accelerated financial aid payments. The government move was unprecedented, and some have likened it to a bank-style bailout….Among CCI’s 108 institutional stockholders, the largest is Wells Fargo, a bank, followed by a whole series of hedge funds, including Shah Capital Management, FMR LLC, Dimensional Fund Advisors, Vanguard Group and Blackrock. According to a congressional report, profits increased eleven-fold at Corinthian between 2007 and 2010, growing to $240.8 million.

And as Matthew Bruckner explains today in Credit Slips, not only did the Administration rescue enable the government to escape losses on debt that otherwise could have been wiped out, but the DoE even reaped fees for salvaging this toxic operation:

While the CFPB continued to prosecute its lawsuit, the ED worked with Corinthian Colleges to find a buyer and prevent its campuses from shutting down. Why didn’t the ED join the lawsuits or pending investigations by “nearly half of the country’s state attorneys general, the Department of Justice, Securities and Exchange Commission, and the Consumer Financial Protection Bureau”? The deal that the ED has apparently blessed may save the ED approximately $600 million, but it seems to do so at the expense of the students the ED serves. Ordinarily, when an institution of higher education closes, its students can avail themselves of the “closed school discharge,” which enables students to discharge 100% of certain federal student loans if they meet certain criteria. But the ED has apparently approved a deal struck between Corinthian Colleges and the Education Credit Management Corporation (“ECMC”), pursuant to which many students will not be able to avail themselves of the closed school discharge. Moreover, the terms of the sale to ECMC provide for various payments to the ED, including $12 million at closing and a $17.5 “earnout” to be paid over the next seven years. In short, the ED is preventing some students from discharging debts that many think they were fraudulently induced to take out, and will receive a direct financial benefit from an entity that appears to benefit from this decision. As a result, some consumer advocates have claimed that the ED is hopelessly conflicted. How the ED can claim that it’s protecting students when it’s depriving some them of the choice of whether to continue their studies or discharge many of their federal, student loan obligations, especially when the ED is collecting a fee in the process?

So just like homeowners who served to foam the runway for banks, students continue to be cannon-fodder for predatory lenders, with the Department of Education taking its cut for protecting Corinthian Colleges’ allies from suffering the full consequences of being in bed with such a persistent bad actor. There seems to be no limit to the willingness of this Administration to grind down what it apparently regards as little people to do damage control for itself and its powerful allies.