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According to a report released in August by the inspector general for the U.S. Department of Education, the official default rate ends up capturing only a small portion of all student loan defaults, and this underreporting tends to benefit for-profit schools the most. The report estimates that in reality, as many as 40 percent of graduates from for-profit schools default on student loans, compared with 12 percent for college students overall.
But thanks to nonsensical official definitions obtained by industry lobbyists, the schools' official reported default rate likely underestimates the real figures.
However, there may be a way to obtain a glimpse at the rate that Corinthian students truly default on their student loans — despite official figures that say that, among its San Francisco students, only 16 percent default.
Remember that $120 million Corinthian's students owe directly to the company? Corinthian projects that in the coming years, it expects students to default on 56 to 58 percent of that debt.
Spokesman Robert Jaffe said the fact that most of the student debt owed to Corinthian will likely go into default should not be taken as evidence that students will default on federally backed student loans at a similar rate.
Jaffe wrote that federal student loans can be put off with deferrals, forbearances, and income-based adjustment, and therefore shouldn't be compared to loans owed directly to Corinthian. But merely because some students owing federally backed loans postpone the inevitable doesn't mean their defaults shouldn't ultimately be recorded as such.
Consumer advocates refer to this as sleight of hand; there's no legitimate bookkeeping reason not to tally the total value of student loans in default. Rather, they say, private colleges disguise total student loan defaults merely to avoid rules designed to protect taxpayers and consumers.
This suggests to me that the inspector general is correct. It also leads me to conclude that Corinthian condemns a greater portion of students to a lifetime of wage garnishment than its official numbers let on.
The for-profit school industry's influence has also been felt in California over the years. During the 1980s, California was known as the heartland of "diploma mills" that churned out students with certificates of questionable worth.
Abuses were so bad that in 1989, the California Legislature unanimously approved a bill that required these schools to graduate 60 percent of enrolled students, and place 70 percent in jobs they'd been trained for. The statute allowed students to sue to enforce the law, and set up an independent regulatory agency, the Council for Private Postsecondary and Vocational Education.
The period that followed turned out to be a brief period of genuine regulation. For more than a decade, however, industry lobbyists have helped chip away at state regulation to the point of nonexistence.
In 1997, Governor Pete Wilson vetoed a bill that would have extended the life of the independent agency, and its duties were transferred to the state's Department of Consumer Affairs, overseen by the governor. According to a PricewaterhouseCoopers report, Wilson's pro-business gambit "disrupted virtually all of the functions of the council."
In 2004, the Sacramento Bee published an exposé saying Wilson created a "passive consumer protection agency that does little to monitor schools."
In 2006, when the law regulating for-profit schools came up for renewal, the Legislature approved a bill that would have extended the law a year and set up a group to study ways to improve regulation. Governor Arnold Schwarzenegger, egged on by the for-profit school industry, vetoed it. As a result, California is now one of only two states without an agency to certify or regulate these types of schools, as required by federal funding rules. "Today, California is left without any kind of protection for consumers who attend those schools," said state Senator Carol Liu (D-Glendale), who sponsored the bill vetoed by Schwarzenegger.
For the industry, it has been happy days in California. A lack of oversight means schools can exaggerate the percentage of students they place in jobs without fear of a state inspection.
California's situation has become so notorious that Robert Shireman, federal deputy undersecretary of education, has made the issue of "state authorization" of these schools the subject of discussions about new possible rules to be applied to federal financial aid.
Schwarzenegger has voiced his support for a bill that would create a post-secondary-school division in the Department of Consumer Affairs. But consumer advocates are calling it a sop to the private school industry.
"It's kind of a license to operate without any oversight," said Betsy Imholz, senior projects director for Consumers Union. "Something dangerous is happening here."
Liu is sponsoring another bill designed to more stringently monitor these schools. Even though vocational students are receiving government grants, she says, "the state of California can't assure any of them they are receiving the kind of education they need."
I asked Laura Chick, California inspector general overseeing recovery spending, whether she would scrutinize the amazing windfall that for-profit schools have obtained through the stimulus. "The FBI states that we could lose seven to 10 percent to fraud in the stimulus spending," she said in a prepared response delivered by a spokesman. "That is just not acceptable. I am putting all recipients of stimulus spending on notice that not only am I going to be watching closely, but so will the US attorney, district attorney, FBI, and federal inspectors general. We are working as an integrated oversight team to first, deter any fraud; and if it occurs, to find it quickly and bring them to justice. I assure you any agency that is high risk for fraud will be at the top of our watch list."
For the time being, Corinthian grads Leveque and Francis are consulting with Southern California consumer rights attorney Elena Ackel about taking the company to court. Ackel says this is a lonely cause: "I can count on one hand the people who give a shit about the students in those schools."
