Career Education settles 5-year lawsuit over marketing practices
- For-profit college operator Career Education Corporation on Thursday said it reached a settlement with 49 attorneys general to resolve five-year-old litigation over its marketing and recruitment practices. The company denied wrongdoing and the allegations against it, which included that it misled students about costs of attending, job placement rates, program offerings and credit transferability.
- Under the settlement, Career Education — which operates American InterContinental University and Colorado Technical University — is to pay $5 million to cover state litigation costs and won't collect on $493.7 million owed by qualifying students, according to a court document. Career Education said it has already written off all but roughly $1.3 million of these accounts.
- Career Education also committed to allowing students to withdraw free of charge for up to seven days after their first day of an on-campus class or within 21 days of starting an online program. The company also agreed to bolster its staff training and hire a third-party administrator to report on its compliance with operational and marketing parts of the agreement.
Given the total collapse of some of the country's largest for-profit operators as a result of legal, regulatory and financial pressure, Career Education's penalties from the settlement may seem light by comparison.
From 2001 to 2010, Career Education's enrollment nearly tripled to 118,205. During that time the company was "under near constant scrutiny from accreditors and law enforcement entities," according to a U.S. Senate report that helped prompt the lawsuit against it by the states.
The attorneys general alleged the company had "placed significant pressure on its employees to enroll students and engaged in unfair and deceptive practices by making misleading statements to prospective students."
Among other practices, the lawsuit accused Career Education of failing to fully disclose that certain programs didn't have the necessary accreditation for students to find a job or obtain a license. State officials also alleged the company improperly counted job placement rates, such as by including graduates who continued working at internships after graduation or got a job outside of their degree field.
As part of compliance monitoring under the settlement, Career Education agreed to record all online chats and phone calls with prospective and current students.
The company came under investigation during a period of heightened government scrutiny over the for-profit sector. As the lawsuit wound through the courts, other major operators, including Corinthian Colleges and ITT Technical Institute, shut down entirely amid steep financial problems and heightened regulatory pressure. During those years, Career Education closed campuses and shed students.
Recently, executives reported enrollment growth they believed to be sustainable. Yet the company has experienced revenue declines in recent years, and its net loss widened by more than 70% year-over-year in 2017, to $31.9 million.
The troubles for the for-profit sector are not over, as the recent shutdowns of Education Corporation of America and Vatterott College in December made clear. Other operators, meanwhile, are retooling their business models by shifting to become nonprofit colleges or service providers to other institutions, through mergers and acquisitions, or some combination of those approaches.
- Court Filing Assurance of Voluntary Compliance
- Career Education Corporation Career Education Corporation Reaches Significant Agreements to Resolve Multi-State Inquiry
Follow Ben Unglesbee on Twitter