Corinthian Colleges, Inc.
) plunged more than 20% after it announced plans to put up 85 of
its campuses for sale and eventually shut down operations at
The transition plan was part of an operating agreement reached
with the U.S. Department of Education (DoE) on Jul 3 which limits
the company's use of federal student aid (Title IV funds) - the
primary source of its revenues.
The Zacks Rank #5 (Strong Sell) company's shares have tumbled
more than 85% this year amid increased government scrutiny.
The Operating Agreement
Corinthian currently serves about 72,000 students and offers
around 107 online and campus-based diploma and degree programs.
Per the operating agreement, DoE will govern Corinthian's
operations while the sale and teach-out of schools is in
Corinthian has to look for buyers of its colleges in
approximately six months. Also, the company will have to stop
enrolling students at the 12 underperforming schools that will be
DoE will appoint an independent compliance and business Monitor
to supervise the campus sales and teach-outs and report the same to
the department. Though DoE agreed to provide $35 million for
student aid funding to manage daily operations, the Monitor will
keep an eye on fund disbursement.
The Santa-Anna, CA-based company assured that the transition
plan will not disrupt the education of current students and cause
minimal personal and financial losses to its staff and faculty.
The Memorandum of Understanding
The operating agreement implements a Memorandum of Understanding
signed between Corinthian and DoE on Jun 22. DoE allowed Corinthian
an immediate $16 million drawdown of Title IV funds to maintain
uninterrupted daily operations. Also, Corinthian was put on DoE's
Heightened Cash Monitoring 1 (HCM1) oversight on Jun 19, which
includes a three-week delay in Title IV funds disbursement.
The funding freeze threw the company in a major cash crunch
which resulted in the decision to sell or teach-out 97 schools to
pull itself out of a possible shut-down.
What Led to the Tough Action?
Corinthian had allegedly falsified job placement rates and
misplaced student attendance records at some of its schools which
led to the strict action by DoE. The information submitted by
Corinthian to defend itself failed to satisfy the DoE.
The DoE's decision has shaken the future of the for-profit
education sector as a whole. The sector has been struggling with
intense competition and a difficult regulatory environment. The
value proposition of a formal college degree is declining due to
increasing tuition rates and overall difficult discretionary
ITT Educational Company
), based in Carmel, IN, is also facing strict enforcement of DoE
rules and is witnessing poor enrollment trends which have led to
the withdrawal of its guidance.
Other Stocks to Consider
Better-ranked education stocks worth considering include
TAL Education Group
DeVry Education Group Inc.
), both sporting a Zacks Rank #1 (Strong Buy).
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CORINTHIAN COL (COCO): Free Stock Analysis
DEVRY EDUCATION (DV): Free Stock Analysis
ITT EDUCATIONAL (ESI): Free Stock Analysis
TAL EDUCATN-ADR (XRS): Free Stock Analysis
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