Students of For-Profit College Freed From Debt

DES MOINES, Iowa (CN) – Attorneys general for 48 states and the District of Columbia settled potential consumer fraud claims against a for-profit college in a deal that includes $493.7 million in debt forgiveness for nearly 180,000 former students nationwide.

New York reached a settlement earlier, and California is expected to join the agreement later. The states have been investigating allegations of deceptive and fraudulent practices by for-profit colleges for five years in response to complaints from students and a critical report issued by the U.S. Senate Health, Education, Labor and Pensions Committee.

A number of other schools initially targeted, including the University of Phoenix and Kaplan University, were dropped from the investigation and the attorneys general narrowed their focus to Career Education Corp.

CEC is based in Schaumburg, Ill., and primarily offers online courses through American InterContinental University and Colorado Technical University.

Among other things, the states allege CEC recruiters used high-pressure tactics to enroll students and misled prospective students about the actual costs, transferability of credits to and from CEC, the school’s graduation rate and graduates’ employment prospects and actual earnings.

“CEC’s practices were unfair to students as well as taxpayers who supported federal student loans that were destined to fail,” Iowa Attorney General Tom Miller said in a statement Thursday. “This agreement not only provides relief to former students, but also protects future students and advances our efforts to clean up the for-profit education industry.”

Miller was one of five state attorneys general that led the investigation.

“To CEC’s credit, it has reformed some of these practices,” Miller said at a press conference in Des Moines on Thursday.

The company echoed that in a statement Thursday, saying the agreement will “build upon the significant compliance monitoring processes the company has adopted over the past several years with commitments to a number of additional operational initiatives that will benefit our students.”

CEC has closed many of its schools over the past 10 years, according to Miller. Its brands have included Briarcliffe College, Brooks Institute, Brown College, Harrington College of Design, International Academy of Design & Technology, Le Cordon Bleu, Missouri College, and Sanford-Brown.

In signing on to the agreement resolving state claims regarding CEC’s compliance with consumer-protection laws, the company denied any allegations of wrongdoing or liability.

“The resolution of this open inquiry is an important milestone for the company that coincides with the completion last month of a multi-year process of teaching out and closing our transitional campuses.” said Todd Nelson, CEC’s chief executive officer. “We have remained steadfast in our belief that we can work with the attorneys general to demonstrate the quality of our institutions and our commitment to students.”

Students whose debt to CEC will be wiped out include those who either attended a CEC institution that closed before Jan. 1, or whose final day of attendance at American InterContinental University or Colorado Technical University occurred on or before Dec. 31, 2013.

In addition to forgiving those former students’ debt, CEC agreed it would not enroll students in programs that do not lead to state licenses required for employment. Also, it will provide a single-page disclosure form that will include total direct costs, the median debt for students completing the program, completion rates, loan default rates, credits transferability, job-placement rates and median earnings of graduates.

While this phase of the states’ investigation of abuses by for-profit colleges is complete, Miller said the job is not done. In fact, he said with educational regulation reforms initiated by the Trump administration, “Our concern is that others will see that as a signal that anything goes.”

“Decisions by the [U.S.] Department of Education put the burden on the states,’ Miller said. “We plan to be vigilant, and we will work with other states in dealing with bad practices. We don’t have the partner in Washington that we had.”

The settlement agreement will be monitored by Robert McKenna, the former Washington state attorney general who is now a partner the San Francisco firm Orrick, Herrington & Sutcliffe.

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