On April 27, Corinthian Colleges, Inc., the publicly traded corporation that bought Heald Colleges in 2010, ceased all operations nationwide, including the closure of Heald College in Honolulu. On Monday, Corinthian filed for bankruptcy.

Looking into the details behind the fall of this large institution brought back memories of the Bernie Madoff ponzi scheme mixed together with mortgage crises that left many “investors” trying to make sense of what happened to them.

All Heald College academic programs were considered “gainful employment programs” by the U.S. Department of Education, subject to specific federal regulations regarding accurate reporting of post-graduation job placement rates. Students were making financial risk calculations between the debt they would incur against the added economic value of a Heald College certificate or degree. And as the largest student loan provider, the U.S. government had a stake in ensuring students could repay these loans when they got placed in higher paying jobs.

Heald College in Honolulu

Heald College, shuttered and now in bankruptcy, is accused of grossly misrepresenting itself to students.

According to CollegeView.com, Heald College Honolulu is considered a private, for-profit community college. It charged $13,740 for in-state tuition and fees for school year 2013-14.

Heald invested heavily in student recruitment and helping students fill out federal loan and grant applications. Its nationwide business model was so effective that students enrolled at Heald Colleges collectively received $67 million in Federal Pell Grant funds, $139 million in Direct Loan program funds and $4 million in campus-based program funds during the 2013-14 award year alone.

Last month, the U.S. DOE sent Corinthian a “Notice of Intent to Fine Heald College” to the amount of almost $30 million. This letter was sent at the conclusion of a 16-month investigation into “performance disclosure documents” and evidence of job-placement rates.

“Heald College failed to meet the fiduciary standard of conduct by misrepresenting its placement rates to current and prospective students and to its accreditors and by failing to comply with federal regulations requiring the complete and accurate disclosure of its placement rates,” the letter reads in part.

The Department of Education detailed one of the most egregious misrepresentations that it uncovered. Heald Stockton reported a job placement rate of 78 percent for its Medical Assisting program graduates, but the department examined the same records and calculated that the more accurate rate was only 33 percent of graduates were placed in the higher paying job they were trained for.

If Heald Stockton had reported its actual placement rate, the Medical Assisting program would have lost its accreditation, and prospective students would have assessed their opportunity/risk and accompanying investment quite differently. If the program’s completion rate was less than 35 percent, and only one-third of those graduates were finding jobs in that field, those would be the kind of numbers that make students reconsider assuming tens of thousands of dollars in student loan debts.

That’s where the similarity to the mortgage crisis takes shape: Heald was basically selling students “a house” at a price they kew students would not be able to afford. And it resembles Madoff’s ponzi scheme because as long as no one investigated the details of how money was being made, a few showcase clients would continue to see a return on their investment — the minority of Heald graduates who actually got placed in a higher-paying jobs. Meanwhile, the majority of student “investors” would walk away with crippling debt.

Accreditors Looked Past Warning Signs

Like both of those financial tragedies, people who should have been protecting consumers dismissed clear signs that something was not adding-up.

In 2012, Heald was granted an initial six-year accreditation by the Western Association of Schools and Colleges (WASC). WASC also accredits the University of Hawaii, Hawaii Pacific University, Chaminade University, Brigham Young University and Argosy University.

The WASC accreditation process takes a full year to complete. The WASC review team that evaluated Heald consisted of seven members who compiled a 108-page report for WASC commissioners to evaluate.

The report began with background information on the 150-year-old Heald Colleges: how the group was a non-profit entity until 2007, and then in 2010, was purchased by the publicly-traded corporation, Corinthian College, Inc. The WASC review team thought this purchase was fortuitous for Heald and its future: “This relationship provides a number of benefits, including access to greater financial assets than the College previously had available.”

Reports this large are often written in sections by different team members and then consolidated into a single report. This could explain why there seem to be blatant inconsistencies regarding elements that would become the center of the Department of Education’s $30 million fine.

In one section, the 2011 WASC report stated, “The College job placement rate – 83 percent in 2008 and 77 percent in 2009 – is commendable, as is the college’s work on tracking and publicizing student employment rates.”

However, in another section, the report acknowledged that most student grievances concern “financial aid” and “job placement assistance.”

Perhaps the most ironic section in the report: “The visiting team recommends that the College continue to monitor its admissions and financial aid processes with vigor and with expectations for high standards of professional conduct. The visiting team also recommends that the College continue to disclose program graduation rates, as well as statistics on gainful employment and information regarding the transferability of course credits to four-year institutions.”

After WASC team members visited the Heald Honolulu campus in October 2011, the team made specific observations and findings, including, “Data suggest that graduation rates are slightly higher than average across all campuses.” The team required follow-up: “Data in the Heald College fact book will be studied more closely.”

Despite these prescient reservations, WASC granted Heald an initial six-year accreditation. However, the approval letter did state that the “Commission is deeply concerned with the very low levels of completion at some sites and in some programs.” The commission continued to underscore this concern throughout seven paragraphs of its five-page letter.

Mitigating Risks Elsewhere

In the immediate aftermath of the Heald closure, there have been some supportive posts on the Heald College – Honolulu Facebook wall, including from UH Leeward Community College: “If you weren’t able to attend the Transfer Days, you can still connect with Leeward Community College. Simple, fast online form and we’ll connect you with the right person to help. http://www.leeward.hawaii.edu/Heald-Info-Request.

In fact the UH system has a great interactive database that allows Heald college students to immediately identify which Heald courses would receive credit at a particular UH community college.

For a more permanent mitigation strategy, Congressman Mark Takano from California co-introduced the Protections and Regulations for Our Students Act (the PRO Students Act).

Introducing the legislation, Takano explained, “It is critical that our students are able to make informed decisions about where they will receive the quality, affordable higher education that is right for them. Unfortunately, some schools, particularly those in the for-profit college sector, are employing predatory, fraudulent and deceptive practices to enroll students, and then leave them with unsustainable debt, worthless credits, certifications and degrees and dismal job prospects.”

The PRO Students Act would ensure that students have access to important and accurate information and data, strengthen oversight and regulation and hold schools accountable for violations and poor performance. The bill would also bolster consumer protections for students and strengthen whistleblower protections for faculty and staff.

Hawaii’s delegation members should consider signing-on as co-sponsors.

This disaster raises other questions that may help the higher ed community address student needs.

Why are students opting for a private, for-profit community college like Heald, when they could have enrolled at a University of Hawaii Community College for one-quarter of the costs? Is it simply the status of attending a private school?

Should our community colleges invest more in outreach and aggressive recruitment? At a minimum, the University of Hawaii should survey all incoming students who are transferring into the UH system (which includes our state’s community colleges) from a private, for-profit school and ask them what UH might have done differently to better serve them in the first place.

Some have suggested there might be more online courses available at a private community college. That might be a misconception, as UH community colleges offer hundreds of online courses every semester. Honolulu Community College this term offered 45 online and cable TV courses from its campus alone. If these courses are filling up and locking out students who need access, UH should respond to the needs of its students. UH President David Lassner, who comes directly from an IT background, would seem better prepared than most college leaders to meet growing needs in online learning.

In the end, the Heald disaster, both here and across the country, leaves in its wake disrupted lives, postponed dreams and financial misery. Enabling proper universities and colleges to better meet student needs, demanding that accrediting agencies do their jobs and passing legislative reforms to protect vulnerable student consumers are the only ways to ensure that disaster isn’t repeated somewhere else.

About the Author

  • Kim Coco Iwamoto

    Kim Coco Iwamoto was elected to the Hawaii Board of Education in 2006 and served until 2011. She also served on the Hawaii Teachers Standards Board from 2009 to 2011 and the Career & Technical Education Coordinating Advisory Council from 2007 to 2011. She was appointed to a four-year term on the Hawaii Civil Rights Commission in 2012.