California lawsuit claims for-profit colleges misled students, investors
10/10/2013 11:30 PM
10/11/2013 12:24 PM
A for-profit college chain intentionally deceived prospective students and investors about the value of its degrees and sought out socially isolated and disadvantaged students, according to a lawsuit California Attorney General Kamala Harris filed Thursday.
Corinthian Colleges Inc. boasted of unrealistically high job-placement rates – as high as 100 percent in some cases – while discussing in internal documents how to recruit students who are “impatient,” have “low self-esteem” or can claim “few people in their lives who care about them,” according to the complaint. The corporation also touted courses, like ultrasound, X-ray and radiology technician programs, that were not available to students, the lawsuit also claims.
“CCI’s representations and advertisements related to job placement were misleading, untrue or both,” the complaint charges. In some cases, “there is no evidence that a single student in a program obtained a job during the time frame specified in the disclosures.”
Organized under Delaware state law and headquartered in Santa Ana, Corinthian Colleges Inc. manages 23 campuses in California and more than 100 in the United States and Canada. The California locations include Heald College schools in Fresno, Modesto, Rancho Cordova, Roseville and Stockton. Its financial report said it served 81,284 students as of June.
The complaint says the chain used an “aggressive” recruitment strategy that deployed “persistent Internet and telemarketing campaigns” and spots on daytime television shows. The Attorney General’s Office also charges that Corinthian Colleges Inc. tried to lure students with connections to the military by using the seals of various branches of the armed forces without government approval.
“The predatory scheme devised by executives at Corinthian Colleges Inc. is unconscionable,” Harris said in a news release. “Designed to rake in profits and mislead investors, they targeted some of our state’s most particularly vulnerable people – including low income, single mothers and veterans returning from combat.”
In response to Thursday’s announcement, Corinthian issued a news release saying the organization was “disappointed” and maintaining that the company has been “cooperating extensively” with the Attorney General’s Office over the last nine months.
“We are committed to regulatory compliance and have robust processes in place to correctly record and disclose the job placement information we receive from our graduates and their employers,” the news release states. “We are proud of the career and technical education that our 15,000 employees provide to more than 80,000 students in the United States and Canada.”
In recent years, the for-profit college industry’s rapid growth has come under fire from watchdogs and public officials who say many of the schools charge exorbitant tuitions, often causing students to go into debt to acquire degrees of questionable value. According to Harris’ office, an associate degree from Corinthian Colleges Inc. schools comes with an average price tag of $40,000.
Policymakers in California have already acted to limit the flow of financial aid to for-profit colleges. The 2012 budget imposed new eligibility requirements on receiving Cal Grants, effectively excluding underperforming for-profit schools. A spokesman for Corinthian confirmed that the change has prevented four Heald College campuses from receiving Cal Grants.
By skewing data about job-placement rates, the complaint charges, the college chain misrepresented the value of its degrees to investors. Unlike traditional colleges, for-profit schools rely on investors to remain financially viable. And the complaint offers evidence suggesting that officials, including CEO Jack Massimino, knew they were presenting false information.
Those allegations of fraudulent claims take on additional significance given an injunction, issued in 2007 after a prior investigation by the Attorney General’s Office, prohibiting certain Corinthian campuses from making unsubstantiated claims about student employment and salaries or course offerings.
If the complaint filed Thursday proves true, the implicated schools could stand in violation of the 2007 court order – a transgression that potentially carries a $6,000 penalty for each offense.
State Sen. Marty Block, D-San Diego, who authored a 2012 bill requiring for-profit colleges to disclose more information about rates of student loan defaults and job placements, recollected hearing from students “who were misled or outright lied to.”
“There are some private for-profit schools that seem to do a very good job,” Block told The Sacramento Bee, “and there are some that are absolutely deceiving students and purposely misrepresenting themselves.”
A scramble to attract students and the federal student-aid dollars they bring could be spurring for-profit colleges to inflate their job-placement numbers, said Pauline Abernathy, vice president of the Institute for College Access and Success. She said skepticism about for-profits has become a national issue, attracting scrutiny from federal investigators and numerous attorneys general. To qualify for federal student aid, schools must demonstrate they “prepare students for gainful employment in a recognized occupation,” language Abernathy called overly vague and easy to circumvent.
“The industry is rife with these types of allegations,” Abernathy said of the lawsuit against Corinthian. “We have a pattern over time and across the industry that really underscores the need for more proactive policies to protect taxpayers and students from subsidizing these practices.”
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