Endeavour Capital's Failing Grade PESP 112118
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Private Equity Stakeholder Project November 2018 ENDEAVOUR CAPITAL’S FAILING GRADE Private equity firm’s investments in for-profit colleges leave many students with little except debt KEY POINTS • Portland, Oregon-based private equity firm Endeavour Capital has been a perennial investor in for-profit colleges. The for-profit college industry has been criticized for using aggressive sales practices, providing poor quality education while leaving students heavily in debt. • In 2009 Endeavour Capital acquired Texas-based Southern Careers Institute. • Ten years after they had started school, former students of Southern Careers Institute’s Austin campus earned just $20,500 on average1, al- most $5,000 less than the average Austin resident with just a high school SOUTHERN CAREERS INSTITUTE diploma.2 The private equity industry has played a • Southern Careers Institute’s students are predominantly low income key role in driving the growth of for-profit col- students of color. leges that have been criticized for providing • During the academic year ended June 2015 (SCI fiscal year ended poor quality education while leaving students December 2014), Southern Careers Institute violated the US Department heavily in debt. of Education’s 90/10 Rule3 by deriving more than 98% of its revenue, Portland, Oregon-based private equity firm $32.4 million out of $33.0 million, from federal government (Title IV) Endeavour Capital has been one of the more sources, the highest of any for profit college.4 active private equity firms in the space, • Last fall, Southern Careers Institute launched Woz U, an online computer making multiple investments in for-profit col- coding "boot camp" with Steve Wozniak, best known for founding Apple leges over the past several years, including in with Steve Jobs in 1976.5 A recent CBS News investigation detailed Arizona-based Grand Canyon University and complaints by dozens of former students about Woz U.6 Texas-based Southern Careers Institute, • In 2005, Endeavour Capital acquired a significant minority stake in Grand which Endeavour Capital still owns. Endeav- Canyon Education a Christian college that converted from non-profit to our also invested in student debt collector for-profit in 2004. Genesis Financial Services. In acquiring and investing in for-profit • In 2010, Grand Canyon Education agreed to pay $5.2 million to settle a colleges, private equity firms like Endeavour federal False Claims Act (qui tam) suit alleging that Grand Canyon violated Capital have turned to their regular playbook the US Department of Education’s ban on colleges providing incentive of buying companies and layering on debt, compensation to recruiters.7 but in this case, it is the largely the US • In 2012, Endeavour Capital acquired Genesis Financial Solutions, an Ore- government that provides the debt and gon-based consumer finance company that originated and serviced private students, especially low-income students of 8 student loans for now defunct for-profit college chain Corinthian Colleges. color, who end up with that debt, often • In September 2014, the Consumer Financial Protection Bureau sued without having received an education that Corinthian, alleging that the for-profit college chain engaged in an “illegal prepares them for a job. predatory lending scheme,” adding “We believe Corinthian lured in consumers with lies about their job prospects upon graduation, sold high-cost loans to pay for that false hope, and then harassed students for overdue debts while they were still in school.”9 Private Equity Jim Baker Stakeholder [email protected] Project 312.933.0230 Endeavour Capital’s Failing Grade SOUTHERN CAREERS INSTITUTE DRAWS HEAVILY ON FEDERAL AID, Earnings of SCI-Austin student vs. PROVIDES POOR OUTCOMES FOR STUDENTS high school student In 2009 Endeavour Capital founded Tall Oak Learning LLC in partnership with former Corinthian Colleges and Delta Career Education executive Joe Fox. In October 30,000 $25,437 2009 Tall Oak Learning acquired the seven campuses of Southern Careers Institute 25,000 $20,500 (SCI) in Texas.10 20,000 Chad Heath and Dietz Fry of Endeavour Capital serve on the board of Southern 15,000 11 Careers Institute parent Tall Oak Learning. 10,000 5,000 Poor outcomes for Southern Careers Institute students 0 Southern Careers Institute’s growth under Endeavour Capital’s ownership has not Median earnings Median earnings of SCI-Austin of Austin, TX paid off for SCI students. student 10 years resident with after starting just a high Ten years after they had started school, former students of Southern Careers school school diploma Institute’s Austin campus earned just $20,500 on average12, almost $5,000 less than the average Austin resident with just a high school diploma.13 Just 18.9% of Southern Careers Institute-Austin students had paid back any of their federal student loans three years after leaving school, compared to the national average of 46.4%.14 By comparison, students at the public Austin Community College paid substan- tially less in tuition but earned an average salary of $35,700 ten years after they had Share of SCI Revenue from started school. 42% of Austin Community College students had started paying back Federal Sources (Title IV) federal student loans three years after leaving school – lower than the national (fiscal year) average but more than twice as high has at Southern Careers Institute.15 1 98.32% Southern Careers Institute heavily dependent on low-income students of color 0.95 The impact of for-profit colleges like Southern Careers Institute is not distributed equally. Students from low-income backgrounds and students of color, particularly 0.9 87.45% 88.20% African-American and Latino students, make up a disproportionate share of 87.60% 16 0.85 for-profit college students. 84.31% Southern Careers Institute’s student population is made up of predominantly low 0.8 income students of color. Two-thirds of Southern Careers Institute students rely on income-based federal 0.75 Pell grants intended for low-income students.17 2010 2011 2012 2013 2014 The majority of Southern Careers Institute students are Latino or African American.18 Southern Careers Institute violated federal rule in drawing on Department of Education funds Southern Careers Institute has aggressively drawn on federal student loan and grant revenue (i.e. Title IV revenue) to fund its operations. US Department of Education Title IV revenue has accounted for at least 87% of Southern Careers Institute’s revenue in all but one year since Endeavour acquired it.19 During the academic year ended June 2015 (SCI fiscal year ended December 2014), Southern Careers Institute violated the US Department of Education’s 90/10 Rule20 by deriving more than 98% of its revenue, $32.4 million out of $33.0 million, from federal government (Title IV) sources, the highest of any for profit college.21 2 Private Equity Jim Baker Stakeholder [email protected] Project 312.933.0230 Endeavour Capital’s Failing Grade SOUTHERN CAREERS INSITUTE REVENUE $40,000,000 $33,897,902 $35,000,000 $33,056,181 $32,777,090 $30,000,000 $32,343,745 $33,030,464 $25,000,000 $26,503,681 $20,000,000 $17,450,378 $15,000,000 $15,398,757 $10,000,000 $11,617,621 $5,000,000 $0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Following early growth, Southern Careers Institute struggles Joe Fox, who served as President and CEO of Southern Careers Institute, reported that he grew SCI’s student population by 170% in first 24 months. In line with that growth, SCI’s revenue grew from $15.4 million in the 2009-2010 academic year to $32.3 million just a year later.22 That rapid growth did not last, though. Southern Careers Institute’s revenue peaked at $33.9 million in 2013-2014 and has since declined by 3.3% to $32.7 million.23 Southern Careers Institute President and CEO Joe Fox left the company in June 2013.24 SOUTHERN CAREERS INSTITUTE’S ONLINE CODING BOOT CAMP “WOZ U” DRAWS CRITICISM Last fall, Southern Careers Institute launched Woz U, an online computer coding “boot camp” with Steve Wozniak, best known for founding Apple with Steve Jobs in 1976.25 A recent CBS News investigation detailed complaints by dozens of former students about the program. One former Woz U student, Bill Duerr, highlighted the students’ concerns: “When you’re doing code and you’re following along, and there’s a typo, and you get an error, you don’t have any idea why you got the error,” Duerr said. “And you’re like how can – did somebody not proofread this? Did somebody not make sure it worked?” Duerr said typos in course content were one of many problems. So-called “live lectures” were pre-recorded and out of date, student mentors were unqualified, and at one point, one of his courses didn't even have an instructor. “I feel like this is a $13,000 e-book,” Duerr said. While it was supposed to be a program written by one of the greatest tech minds of all time, “it’s broken, it’s not working in places, lots of times there’s just hyperlinks to Microsoft documents, to “It is drive, drive, drive Wikipedia,” he said.26 the sales.” CBS also spoke so Tim Mionske, one of the Woz U “enrollment counselors,” who was charged with selling Woz U to prospective students. “It is drive, drive, drive the Former Woz U enrollment 27 counselor Tim Mionske, sales,” Mionske said. October 2018 When confronted by reporters, Wozniak dodged questions about his involvement in the school.28 3 Private Equity Jim Baker Stakeholder [email protected] Project 312.933.0230