A besieged chain of for-profit colleges based in Orange County has signaled that it is in danger of shutting down after the U.S. Department of Education sharply cut back its access to federal money for student loans and grants.
Plagued by complaints that it had falsified student job placement rates, Santa Ana's Corinthian Colleges Inc. disclosed Thursday that the Education Department had heightened its financial scrutiny of the company. And it warned that the sanctions may jeopardize cash flow crucial to keeping the company afloat.
Corinthian is one of the nation's largest for-profit college corporations, with more than 81,000 students spread across more than 100 campuses in 25 states and Canada. The company has also been the subject of lawsuits and investigations by federal agencies and more than a dozen state attorneys general, including California.
"If the company is unable to timely obtain alternate financing, the company's cash flows will not be sufficient to meet its obligations as they become due, which would cause the company to be unable to continue as a going concern," Corinthian said in a report filed with the U.S. Securities and Exchange Commission.
A Corinthian spokesman, Kent Jenkins, declined to elaborate. The company indicated that it would "redouble its efforts" to seek relief from the Education Department, but that the agency hasn't been willing to compromise.
The disclosure took some students by surprise at Everest College, a Corinthian school with a campus in the City of Industry.
Nicole Langevin, 24, a medical assisting student wearing a light-blue pharmacy scrub, said no one at her school had mentioned anything about budget issues concerning the school's corporate parent.
"I guess they haven't told us anything because why panic everyone?" she said. "Until they give me a heads-up, I'll stay and keep going to class."
Like many for-profit college corporations, Corinthian relies heavily on federal student loan and grant dollars, which make up more than 85% of the company's revenue. The Education Department's sanctions deal a direct blow to Corinthian's access to such funds.
The federal government makes loan and grant money available to students, but college financial aid offices process the funds to pay for tuition.
Typically, federal student-aid money becomes available to a school within three days, but the Education Department has added an additional 21-day waiting period to process claims for federal loan and grant money at Corinthian's schools.
The department said in a news release that the new restrictions came after Corinthian "failed to address concerns about its practices, including falsifying job-placement data."
Corinthian's shares plunged 57 cents, or 67%, to close at 28 cents on Thursday after news of the filing.
Industry analysts who follow Corinthian said the sanctions are particularly severe because the company has struggled with cash flow over the last year.
"If they don't have the cash, they basically can't make payroll and keep the lights on," said Trace Urdan, an analyst who follows the for-profit education sector for Wells Fargo Securities. "You're talking about potentially 75,000 students who are just completely stuck. It's a pretty big deal."
Corinthian has been under heightened scrutiny from the Education Department since January, when the agency requested extensive documentation on student job placement rates and attendance records in light of several state and federal investigations.
Since learning of the sanctions last week, Corinthian has been unable to negotiate additional financing from its lenders to make up for the shortfall. The company warned in Thursday's filing that it may be "unable to continue as a going concern" without an alternate infusion of cash.
Corinthian and many other for-profit college companies saw revenues and enrollments soar during and after the Great Recession, when legions of unemployed workers sought to improve their fortunes through career education.
But state attorneys general and federal agencies started cracking down on the industry beginning in 2009, amid evidence that schools were aggressively marketing to low-income students and not coming through on promises of career placement.
California Atty. Gen. Kamala D. Harris sued the company last fall, accusing it of artificially boosting job placement rates to attract new students. Documents revealed in the lawsuit showed that Corinthian targeted students with "low self-esteem" and who have "few people in their lives who care about them."
Corinthian denied the claims and the case is ongoing. Corinthian settled a similar suit with the California attorney general's office for $6.5 million in 2007.
The company is also under investigation by the federal Consumer Financial Protection Bureau and attorneys general in more than a dozen other states for allegations that include aggressive marketing and grade inflation, according to securities filings.
"Where some others in the industry have faced pressure in one area or another, Corinthian has basically faced every obstacle in the industry," said Michael Tarkan, a research analyst with Compass Point who follows the for-profit education sector. "Corinthian is exposed to every single one of those issues."