Will Corinthian Colleges’s kind of education meltdown happen in Malaysia?

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The final nails are being hammered into the coffin of Corinthian Colleges, once one of the largest for-profit education groups in the USA. The impact of this private higher education meltdown is far and wide. Many of its remaining 16,000 students are left out in the cold, most are shouldering huge personal / education debts with bleak future. Many of Corinthian’s problems that led to its downfall are related to inappropriate management of state-funded education loans to students and over promise of job prospects and pay levels. Can we find similarities in cases of education institutions’ collapse in Malaysia?

If PTPTN can finally get it’s act together (it looks as if it has began the clean-up which it should have been doing in terms of defaulting borrowers management long time ago), will we witness similar higher education meltdowns in Malaysia too?

There are just too many colleges (private, community, public etc.) chasing a Malaysian youth population that is not growing in tandem with their collective capacities. The growth in international students population can help to redress this only a little. Not all the smaller players have what it takes to attract foreign students!

Should PTPTN now also start honing on errand colleges and universities which have been over promising its students with job prospects? Let’s be fair on this, PTPTN should include every institution, both private and public where the most loan defaulters have come from. It also owes the citizens of Malaysia an explanation on why it had decided in November 2014 to whack 15% from the private college students’ PTPTN loan amount while taking only 5% from those in the public institutions of higher learning. This reduction has already showing its impact on the enrollment figures of many private institutions relying heavily on PTPTN loan to fund their students (does this ring a bell?….think Corinthian!).

Consolidation of the higher education industry of Malaysia was called for by some politicians recently. But these people may not have a full understanding on how the higher education industry works and they have no idea of the complexities that the act of consolidation (along the idea of banks mergers) would entail. Colleges and universities are not like banks, the “products” are all very different, the pricing systems and delivery schedules are all unique to individual institutions. It would be easier to let “sick” colleges die than to “cross infect” the healthier ones! No sane edupreneur will be willing to buy into someone else’s huge debt!

With more stringent entry requirements for private colleges and universities set to come into effect in 2016, and the possibilities of PTPTN getting tougher on institutions which produced the largest number of bad debtors, there is a huge storm that the higher education industry as a whole and the private sector in particular are riding into. The “Corinthian Meltdown” may yet to be witnessed in Malaysia!

I for one will not be buying any education stocks for now!

(Declaration: I do not hold any direct shares in any of the 4 public listed education groups in Bursa Malaysia!)

Contagion effects of for-profit colleges woes?

On the day that Americans celebrated the country’s independence day, The Huffington Post reported that one of the largest for-profit college groups in the USA, Corinthian Colleges was heading for disaster. The crux of the matter was due to Corinthian’s over reliant on federal government-backed study loans to the bulk of its 72,000 student loan which was effectively pulled back by the authority. For 2013 Corinthian had a revenue of US$1.6 billion, US$1.4 billion of which was attributed to federal government-backed study loans. 85 out of over 100 of Corinthian’s campuses over 25 states are now up for sale with another 12 slated for full closure.

Although Corinthian gave reassurance to affected students that their studies would not be disrupted, the damage to the confidence of the market is irreparably done.  Corinthian’s case has not been helped by a judge ruling that it does not need to disclose its financial woes in any of its advertising materials. This fuels speculations that there must be more that meet the eyes as far as Corinthian’s predicament is concerned.  It was disclosed that Corinthian’s case may just be the tip of the iceberg, another for-profit group, ITT Education Services Inc. is set to lose some of its federal government funding.

Just 10 days later, a routine audit and review by the U.S. Department of Education (DOE) on the largest for-profit education group, Apollo Education Group which, according to Apollo was a routine procedural matters was read by the market, in light of the Corinthian case with “controlled alarm“.

Are we seeing a contagion effect on the for-profit higher education sector in the USA? Will this contagion effect due to the pulling back and tightening scrutiny of for-profit players in the USA have a “mirror” image if PTPTN (Malaysia’s National Higher Education Funding Corporation) copies some of the measures taken by the USA’s DOE?

So far PTPTN has been concentrating on its efforts in the recovery of study loans and it has not been paying too much attention on the education providers. It is surely highly beneficial if PTPTN performs periodic auditing and review of all the education providers, both public and private to ensure that the study loans provided are spent prudently and achieving their intended purposes.

PTPTN can also collaborate with other agencies such as the Malaysian Qualifications Agency which oversees the quality of teaching and learning of higher education providers to ensure that their respective databases can be cross-referenced.

The yearly amount of RM5.0 billion injected to the entire Malaysian higher education industry as student loans. This is the fuel that sustains the bulk of the for-profit institutions of higher learning in Malaysia. More stringent reporting and auditing procedures should be levied on all institutions of higher learning whose students are receiving PTPTN loans. Institutions, whether public or private with high percentage of PTPTN loan defaulters should be made accountable and if needed, PTPTN should do like the DOE of USA, pull funding from these institutions accordingly.

If we let the status quo persists, the student loan contagion effect of the USA will reach our shores sooner than you expect!

Footnote: Dr. Chow has an opinion piece on his column in the weekly, The Heat dealing with his experience in repayment of study loan and why he sleeps soundly each night as his conscience is clear, he paid back all he had owed! 



July 20, 2014: It seems that the contagion effect has started in the USA. Another for-profit education group is under the spotlight. This time, DeVry University is being investigated by New York Attorney General.