Purchaser of defunct for-profit begins to plot a strategy

SAVANNAH, Ga. — As a guarantor of student loans that specialized in collecting from students on the precipice of bankruptcy, the Educational Credit Management Corporation saw up close the “impact of students taking on debt, dropping out of school and being no better off than when they started college in terms of being able to find well-paying jobs,” says David Hawn, the nonprofit guaranty agency’s chief executive officer.

So after initially “laughing and saying ‘no way’ ” when ECMC was first approached last year about buying parts of the failing Corinthian Colleges chain, Hawn perceived an opportunity. (Note: This paragraph has been updated from an earlier version of the article.)

“When I became president and CEO of ECMC in February a year ago, it became a passion of mine that we try to figure this out, to do something different” in the way low-income students seeking postsecondary education and career-related training finance and complete their studies, Hawn said.

The guarantor never envisioned becoming an operator of career colleges itself — let alone “perhaps the most distressed school assets on the planet,” as Hawn calls them — but that’s exactly what ECMC did in February, when the U.S. Education Department signed off on a sale of 53 of the failing for-profit Corinthian’s campuses (with 33,000 students) to Zenith Education Group, an ECMC subsidiary, for $24 million.

In a speech here this week to the National Council for Higher Education Resources, which represents lenders, guaranty agencies and other organizations that support student loan and grant programs, Hawn sought to explain ECMC’s reasons for buying the Corinthian campuses, its early plans for turning the failing campuses into going concerns, and “why I’m not as crazy as you might think” to create the nation’s largest nonprofit career college provider.

The ECMC purchase of Corinthian campuses generated scorn from some critics of for-profit colleges and advocates for student loan borrowers when it was originally announced in November, despite the fact that federal agencies — including those charged with protecting consumers — heralded the deal as the best possible outcome (even if the pickings were slim) for students and the government.

Critics raised numerous objections, from the practical — ECMC’s lack of experience running institutions — to the philosophical. While consumer advocates reserve much of their ire for for-profit colleges and companies, which ECMC is not, student loan providers aren’t much better in their eyes, especially one like ECMC that has profited nicely from fighting against student loan borrowers in bankruptcy proceedings.

Hawn may be unlikely to win over the more vehement of the deal’s critics, but his genial manner is disarming and some of the comments in his talk here this week suggest a radical shift in how the campuses have historically operated.

The old way cannot be acceptable, Hawn said.

“We’ve got to stop the madness of enrolling them, socking them with debt and being no better off toward getting a decent-paying job,” he said of career colleges.

Certain aspects of ECMC’s agreement to take over Corinthian’s Everest and WyoTech campuses captured much of the early attention, most notably the decision to forgive $480 million in loans Corinthian students took out from a controversial private lending program the for-profit college company created. Zenith, the new ECMC subsidiary, also agreed to cut tuition by 20 percent for all Everest students who enroll and to provide a 20 percent “graduation scholarship” (essentially a refund on previous payments) to help them repay their loans. Zenith has also dumped the private loan program for a program that will provide its students — 60 percent of whom qualify for full Pell Grants — with grants of up to $10,000.

Several analysts have questioned how Zenith could make functional a set of campuses that failed under Corinthian, and Hawn listed a few strategies and approaches that might help make that possible. Some of them won’t help the bottom line immediately, though.

For instance, Zenith is phasing out programs that are “severely underperforming” in terms of not producing acceptable job placement rates.

“Imagine selling that to my board,” Hawn said. “I have a great idea. We’re going to buy the most distressed school assets in the country, then eliminate about one-third of their programs, even though they may… be profitable, because they’re producing poor outcomes for students.”

Students in those programs had three options: finish out their current programs; switch to another program, with a credit for all tuition and fees paid in the original program; or request a full refund. Two-thirds of students opted to stay in their programs, and another 10 percent sought a voucher to switch programs. Sixteen percent sought a refund, and 7 percent withdrew outright, Hawn said.

“The only way this career education model works is if we’re focused on matching up prospective students with the right program, and working with employers to make sure we have jobs lined up for graduates,” Hawn said. “If we can’t do that, we have no business being an owner and operator of career schools.”

Hawn said it was important that institutions like the ones ECMC took over remain accessible, since “this is the last chance for many of the students we admit” — a common sentiment expressed by officials at for-profit (and other) colleges that enroll academically underprepared students.

But institutions like Corinthian took that idea too far, said Hawn, who noted that as ECMC has looked into the past, fully half of all Corinthian students who had loans through the lender-based Federal Family Education Loan Program had defaulted on their loans.

“If we’re enrolling students only to have them drop out, they’re no better off than had they never met us in the first place,” he said.

Some of the work to ensure that students succeed academically will happen before enrollment, Hawn said. “We have to move away from admitting anybody who has a breath and can sign a promissory note. We don’t have a program for every prospective student, and we may need to refer you somewhere else.”

Zenith also plans to focus much more on remediation, and will rely on the ECMC Foundation — which has $265 million in assets from its student loan business — to make grants in areas such as college and career readiness, college retention, and research on teaching and student success.

The company also will adjust curricula to see if it can get students through programs faster, where appropriate. The era when career colleges might have doubled their revenue by offering a two-year rather than one-year program should be over, Hawn said. “We’re not going to do that. That’s not what a student-focused, nonprofit provider should do.”

Hawn recognizes that right now, many of these commitments are just that — words. And he understands that skeptics can’t be turned into believers without actual results, which will take some time.

“We have a whole lot of work to do.”

For-Profit Higher Ed
Partnerships With Nonprofit Colleges
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David Hawn

Original URL: https://www.insidehighered.com/news/2015/06/04/purchaser-defunct-profit-begins-plot-strategy

Original article

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