Re COCO, might be more than "emotions"...
COMPANIES THE AMERICAS: College fee probe extends to Corinthian
By Stephen Schurr in New York
Financial Times; Jun 24, 2004
A division of the US Department of Education has uncovered violations in obtaining federal loans at Corinthian Colleges Inc's Bryman College campus in San Jose, California, according to individuals familiar with the matter.
As a result, the department has revoked the school's ability to receive advance payments on its student loans, these individuals said. Officials at Corinthian declined to comment.
Separately, shares in a rival company, Career Education, fell 22 per cent yesterday after the Securities and Exchange Commission said on Tuesday night it had upgraded its informal investigation into the company into a formal one. The company said it "intends to continue to fully co-operate with the SEC".
The news of the inquiry comes less than a week after an amended shareholder lawsuit cited 13 former employees in alleging widespread fraud, including falsifying student records to collect student loan money from the federal government.
Meanwhile, according to legal sources, the Education Department's Office of Federal Student Aid (FSA) in San Francisco has uncovered fraud during a review of Corinthian's Bryman College.
Inspectors discovered that school officials had helped students manipulate financial aid documents to obtain the maximum possible towards tuition fees - breaching Title IV of the Higher Education Act. They found admissions officers assisted students in claiming extra dependants to obtain additional financial aid, according to the legal sources.
A Department of Education FSA official confirmed there was a review going on but declined to discuss details of its findings.
Corinthian, which runs about 150 campuses and relies on student loans for 82 per cent of its revenue, said it did not comment on matters it regarded as normal and non-material. The review does not affect the status of other Corinthian schools.
Nevertheless, it is understood the Bryman's San Jose campus is being forced to change its model for student financing. Rather than the government paying in advance, the school must pay and seek reimbursement from the government.
Any school in breach of Title IV rules must first pay back the government any loans fraudulently received before being reimbursed.
In the past, when the education department has switched lending status from advance payment to reimbursement across a company's colleges, some for-profit education companies have been forced into bankruptcy.
Two examples include Computer Learning Centers and Phillips Colleges. Career Education chief executive and chairman John Larson served as an executive at Phillips College in the early 1990s.
US companies that run for-profit higher education colleges have won many devotees as their stocks on Wall Street have risen fivefold since 2000. But several of the sector's leading companies are coming under scrutiny from regulators and plaintiffs' attorneys.
Last month ITT Educational Services Inc. suspended plans for stock buy-backs, citing an ongoing federal investigation regarding claims that the company had allegedly falsified student attendance records, grades and job placement statistics. ITT has said it is co-operating with the investigations. Various practices are being probed at several education companies by both state and federal regulators to determine if any schools committed fraud in tapping the $5bn in annual federal student funding.
Student loans constitute roughly two-thirds of the industry's revenue, making any regulatory threat to that income potentially devastating for the companies.
© Copyright The Financial Times Ltd
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