Phi Beta Cons

Live by the Goverment, Die by the Government

It may be too early to predict the demise of Corinthian Colleges, a for-profit online school with 72,000 students, but the company is in extremely difficult straits, thanks to the Department of Education. The problem is not the threat of “gainful employment,” the rules that the department is about to impose selectively on for-profits, but a direct attack on this particular school.

For the past six months the department and Corinthian have been going at it, according to Inside Higher Education. Now the department is delaying its payment of student loans to the school by 21 days, which, it appears, will severely hurt the cash position of the school, forcing it to borrow–but it’s having trouble doing that,  especially since its stock price has dropped to 28 cents.

IHE reports that the department claims that Corinthian has not answered questions about “its practices, including questions about job placement data, marketing claims and allegations about altered student grades and attendance records.” Corinthian responded to IHE that it had 100 people working on replying to the department’s queries and that the inquiry keeps expanding.

This contretemps–which, with the education of 72,000 students in play, is serious indeed–illustrates how far this nation has gone down the path of selective use of government power. (The IRS scandals are an even more spectacular example.) How does a federal bureaucracy have the power to destroy a company without benefit of judge or jury?

But it also illustrates that companies that live by the sword can die by the sword. For-profit companies rely on government-backed and government-provided student loans. Eighty percent of Corinthian’s revenues come from such loans. Without them, the for-profit sector in education would be small indeed or entirely different. And the government is fickle.

Jane S. ShawJane S. Shaw retired as president of the John W. Pope Center for Higher Education Policy in 2015. Before joining the Pope Center in 2006, Shaw spent 22 years in ...

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