After months of uncertainty and pressure from the federal government to wind down its operations, for-profit university system Corinthian Colleges Inc. has contracted to sell 56 of its U.S. schools, including two in Colorado Springs.
The California-based company made the announcement Nov. 20 that it has agreed to sell the campuses and their assets for $24 million to Zenith Education Group Inc., the sole subsidiary of Minnesota-based ECMC (Educational Credit Management Corporation) Group Inc.
The schools include Everest University Online (1575 Garden of the Gods Road) and Everest College (1815 Jet Wing Drive), which together employ more than 300 people in Colorado Springs.
The deal is expected to close in January, after which Zenith plans to convert the schools — serving more than 39,000 students in 17 states — into nonprofit learning institutions. The purchaser will also continue teach-out processes in effect at 12 schools as part of a deal Corinthian struck with the U.S. Department of Education in July.
“Everest and WyoTech students will benefit greatly from ECMC Group’s commitment to students and its goal of making a positive difference in career education,” Corinthian Chairman and CEO Jack Massimino said in the release. “ECMC will focus significant resources on student programs and services and enhance the future prospects of Everest and WyoTech.”
Zenith is now under contract to buy all of Corinthian’s U.S. schools, save those located in California.
In a memo to Corinthian employees, ECMC CEO Dave Hawn indicated ECMC intended to purchase all of Corinthian’s operations but was barred by pending legal action that could have meant legal liability for ECMC.
“Due to pending litigation, we were sadly unable to include the 13 Everest and WyoTech campuses in California in our purchase agreement,” Hawn wrote.
As part of the $24 million deal (subject to adjustment), $8.5 million will be placed in escrow and $12 million will be paid to the Education Department, which will also receive up to $17.25 million in additional revenues over the next seven years to be used for student support.
The asset purchase agreement, signed by both parties Nov. 19, stated that ECMC will not assume any legal liabilities associated with the issues of private student loans, litigation and indebtedness the system has come to be known for.
The deal comes just months after Corinthian’s operating agreement with the Education Department to wind down and close 12 of its schools and sell all others it operates in the U.S.
While the 56 schools are to be sold, 39 others that serve around 20,000 students in California and Canada will remain in Corinthian’s ownership. Those schools include 12 Heald College campuses in the U.S., 13 Everest and WyoTech campuses in California and 14 Everest campuses in Ontario, Canada.
“We will continue to operate these schools until we find buyers for them,” Massimino wrote in the email, adding that those schools will be subject to restructuring.
Hawn said the new ownership of Everest plans to retain its school employees and most Campus Support Center employees, who have faced a slew of layoffs and furloughs in the past year.
“Our plan is to offer employment to substantially all of you,” Hawn wrote. “We plan to keep the best of what works in your current programs, while changing the things that don’t.” The new ownership plans to make several structural changes as well.
ECMC’s intent to buy the schools includes plans to improve affordability by reducing tuition by 20 percent for newly enrolled students, effective upon closing, as well as increase access to institutional grants for students averse to taking out private loans, according to the Education Department. The department also indicated measures will be taken to increase accountability and transparency in reference to such things as completion and job placement rates, which Corinthian had often failed to report in a timely and accurate manner.
“We plan on making several student-focused changes immediately upon closing, and are committed to tapping into your expertise and learning from you how best to improve student outcomes,” Hawn wrote. “Together we can — and must — improve program completion rates and job placements.”
Education Department Under Secretary Ted Mitchell endorsed the sale in a statement, referencing Corinthian’s past relationship with the governmental body:
“We are glad that Corinthian has reached an agreement with ECMC Group and believe that this transition will allow students to maintain progress toward achieving their educational and career goals and protect taxpayers’ investment, while Corinthian moves out of the business. We are pleased to help students transition from a problematic for-profit company to a nonprofit that is committed to giving students a new start and more opportunities for success.”
Independent monitor Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates will oversee the transition under the leadership of U.S. Attorney Patrick Fitzgerald.
This will be ECMC’s first experience operating a system of higher learning institutions, although it does have experience in operating education-related call centers and collecting on student debt.
ECMC, one of a handful of guaranty agencies for the U.S. government since shortly after its founding in 1994, has come under criticism in recent years for questionable tactics used in its debt collection methods. Reports include claims that ECMC abused its power and has been “ruthless” to student debtors.
“A review of hundreds of pages of court documents as well as interviews with consumer advocates, experts and bankruptcy lawyers suggest that Educational Credit’s pursuit of student borrowers has veered more than occasionally into dubious terrain,” according to a January report by The New York Times. “A law professor and critic of Educational Credit, Rafael Pardo of Emory University estimates that the agency oversteps in dozens of cases per year.”
A panel of bankruptcy appeal judges in 2012 said the agency’s collection activities “constituted an abuse of the bankruptcy process and defiance of the court’s authority,” the report said.
A separate report by Bloomberg News said per-debt collection commissions had helped one ECMC employee make $454,000 in a year while a former CEO made $1.1 million.
Although Corinthian operates its own default management subsidiary — similar to ECMC’s default prevention services — the company is not among the assets ECMC plans to acquire.
In the several months leading up to the agreement, Corinthian employees were subjected to layoffs, furloughs and general uncertainty about the future of the company and their careers.
A furlough in September affected all of the company’s 97 schools, including the 300 employees it currently employs at Everest University Online and Everest College in the Springs.
“During the furlough, you are not expected, nor are you permitted, to perform any work whatsoever (even checking emails or voicemails),” Human Resources Senior Vice President Jim Wade wrote in an email to staff.
In July, the company made a deal with the U.S. Department of Education to draw down the remainder of its operations, including the sale of 85 schools and closure of 12 others within six months of the agreement.
The plan was arranged after months of federal and state investigations into the company’s business practices, including the legitimacy of claims related to job placement and enrollment data.
The Education Department said in a July news release that the agreement was aimed at allowing Corinthian’s 72,000 students to successfully complete their educations by means of graduation, transfer or refund.
The DOE halted enrollment at the closing schools and continues to monitor activity at the schools for sale, but authorized $35 million in federal financial aid to be used only for government-sanctioned activities.
Carmella Cassetta, division president for Corinthian Online Services in Colorado Springs, announced her immediate departure from the company via email Friday, citing “other opportunities.”
The Wednesday prior, the Nasdaq stock market notified Corinthian that it was no longer in compliance with listing requirements after failing to file mandated financial reports.