REVOLVING DOOR JULY 25, 2013
Not long after he checked out of the Defense Department in February, Leon Panetta checked back in to Corinthian Colleges, the chain of for-profit schools where he had served on the board of directors before joining the Obama administration. The reunion, though, was fleeting. On Monday, Corinithian disclosed that Panetta had resigned, just 11 weeks after his return. There are many good reasons a highly regarded former public official like Panetta would want to distance himself from Corinithian—but then, they should have been good reasons for him to avoid renewing the association in the first place.
“It is certainly not an institution that I would call a stellar performer, or anything close to it,” says David Bergeron, a former acting assistant secretary at the Department of Education, adding: “I would say this is something he should’ve known better than to do.”
After all, the dossier of Corinithian’s offenses is long and public. When the DOE tried to identify the bottom quarter of for-profit colleges (by setting minimum standards for students’ debt repayment and debt-to-income ratios), about 25 percent of the culprits belonged to Corinthian. (The company disagreed with the DOE’s analysis of the data, and a federal judge has since gutted the regulations.) A Senate Health, Education, Labor, and Pensions Committee report on for-profit colleges from 2012 identified Corinthian as one of the most expensive outfits in a sector known for bleeding students dry, put its drop-out rate around 50 percent, and said the proportion of students who default on their loans (36.1 percent in 2008) was “by far the highest…of any publicly traded company examined” and “raises serious questions regarding the quality of the programs Corinthian provides, and whether its students who complete programs earn high enough wages to repay the debt they take on.” As Salon noted in a report last year, multiple students have sued Corinthian for misrepresenting its credits and cost, and a 13-page affidavit from a former Corinthian admissions officer alleged he was told to recruit new students by “making them feel hopeless.”
Panetta's letter of resignation, which is quoted in an SEC disclosure from the company, skirts these dismal details. Instead, it hems and haws, saying that he is “struggling with a large number of commitments, requests and obligations on my time.”
“I believe in and support the educational role of Corinthian in delivering educational opportunities to those that otherwise would never have a chance to succeed,” he writes. “It is also obvious that the role of Corinthian is going to be continuously challenged legally and administratively because of what appears to be a slanted and misinformed attitude toward this form of educational opportunity. To counter that challenge will of necessity demand a great deal of time and attention on the part of each and every board member.”
Panetta would not comment for this article, but he probably wasn’t surprised by Corinthian’s challenges, since the first year he spent on the board—from 2008 until 2009—was “the time frame of some of the worst activity [at Corinthian],” according to Ben Miller, a former senior policy advisor at the Department of Education.
That’s really saying something, considering that Corinthian has pretty consistently been in legal straits since 2004, with everyone from its students to the government. But in the years following the financial crisis, when Panetta was first on the board, Corinthian and other for-profits started lending directly to their students to fill the void left by the credit crunch, with the expectation that around half would be lost to default. They were happy to front money to students they knew could never pay them back because of a loophole in a federal law: Government funds can comprise up to 90 percent of for-profits’ income, so by lending a dollar, schools can rake in nine more from federal student loans and Pell grants. The result is that taxpayers put most of the “profit” in for-profit colleges, paying for over 70 percent of most colleges’ hauls.
Some of this income, of course, went back to Panetta. Corinthian spokesman Kent Jenkins says directors on the company’s board are usually paid $60,000, plus deferred stock with a target value of $90,000, though Panetta’s new shares wouldn’t have been vested yet. Of course, for many public servants who find their way to for-profits, the payday isn’t only in the salary. For example, Marc Morial, a former New Orleans mayor who joined the board at the same time as Panetta, is currently the head of the National Urban League, which accepted $1 million from Corinthian last year. (Morial did not respond to requests for comment on this article.)
“It’s a way to get paid more,” Miller says. “Or it’s a way that, if you think you can make a difference, the resources and flexibility to do it would be at your disposal. Probably everyone who does it is somewhere on the spectrum between those two things.”
When I asked Jenkins how Panetta first got involved with Corinthian in 2008, he said the then-former Congressman and the company’s CEO, Jack Massimino, had a mutual friend who helped convince Panetta to visit a Corinthian campus in California. “I think he had planned to spend an hour or two, and as Jack tells the story, he ended up spending the whole day,” Jenkins told me. “At the end of the day, as Jack tells it, he says, ‘This is exactly what we ought to be doing. I will join your board.’ And he did so.”
Like most of for-profits’ defenders, Jenkins says Corinthian’s schools and others should be compared to community colleges, not four-year non-profits. “Career colleges like ours enroll more students that are at risk for not graduating than community colleges do,” he told me. “It is also true that our graduation and completion rates are higher than community colleges.’” But though for-profits do serve hundreds of thousands of low-income and nontraditional students, it’s hard to see them as agents of empowerment when you consider that an associate’s degree at Corinthian’s Everest College can cost over $40,000, in the findings of the HELP committee. The pricetag at nearby Santa Ana College is just over $2,000.
“I’ve had former colleagues that have gone on the boards of for-profit schools before, and they went to those institutions or onto those boards thinking they could change those institutions for the better,” said Bergeron. “I think that’s part of human nature. We think that we can change something, so we step out trying to do that, and when we’re disappointed or disillusioned, and we step off quickly enough before we do more harm.”
Panetta might have been eager to “step off” given that this June—during the blink of an eye that was his second term on the board—Corinthian acknowledged that it had received a subpoena from the Securities and Exchange Commission, probing its “student recruitment, degree completion, job placement, loan defaults and compliance with U.S. Education Department rules, among other issues,” according to the Los Angeles Times. (Education expert David Halperin reports it is also under investigation by the federal Consumer Financial Protection Bureau and state attorneys general in California, Florida, Illinois, Massachusetts, New York, and Oregon.)
Or given that, since Panetta’s first tenure, Obama has crusaded for increased regulation of for-profits, and the fight seems to be coming to a head. Last June, a judge struck down the gainful employment standards that the DOE had struggled to produce in 2011 (despite the schools’ $13 million lobbying campaign), and this spring the administration vowed to write more. Meanwhile, a bill that would repeal what’s left of Obama’s for-profit regulations and defer any attempt to negotiate new ones hit the House floor Wednesday, authored by representatives who, USA Today reports, have all received tidy sums from for-profits.
With Congress and the White House gearing up for another showdown over for-profit schools, it’s a relief that one of the President’s longtime advisers, and one of Washington’s best-liked éminence grise, is no longer on the other side of enemy lines. But, given Corinthian’s record, it’s a shame he ever found himself over there at all.
Nora Caplan-Bricker is an assistant editor at The New Republic. Follow her on Twitter @NCaplanBricker.