For-profit Colleges Under Fire in Lawsuits

Attacking the quality and motives of the for-profit college sector has become a popular exercise these days.

Regulators have called for tighter controls. Investigations have pointed to grade inflation, misleading success stories and questionable recruiting tactics.

And across the country, lawsuits like one crawling through the Madison County court could add flames to the fire.

The suit — filed in 2008 against Sanford Brown College, a powerhouse in the industry — claims the school’s Collinsville campus misrepresented the ease with which students could transfer to other schools or find jobs upon graduation.

The litigation got a significant boost late last year when a judge granted it class action certification. That opens the suit not only to the medical assistant students who first sued the school, but also to more than 1,500 former students.

It’s the sort of thing that, if successful, could spark even more lawsuits and have significant ramifications for the industry.

"If it really starts to snowball, we could be talking about a serious expense," said Trace Urdan, an analyst for investment banking firm Signal Hill who tracks the industry.

Industry experts say there’s already been an increase in such suits, with the sector under intense scrutiny from Congress, the president and various state regulators. They’re all looking for ways to more tightly regulate an industry that enrolls 1 of every 10 college students, claiming more than a quarter of federal financial aid while accounting for more than 40 percent of loan defaults. In the middle are students claiming they were lured onto these campuses by lies.

There is, from a legal perspective, blood in the water.

"You don’t have to be an ambulance chaser to know this is a vulnerable industry," Urdan said.

Experts say it’s a trend being pushed by increased media attention and by lawyers who see the lawsuits as low-risk, high-reward opportunities. They cost little to file, particularly when compared with environmental or medical claims that require costly experts and expensive tests.

It doesn’t help that the industry’s own successes have made it a prime target, said Harris Miller, president of the Association of Private Sector Colleges and Universities, an industry trade group.

Back when it represented less than 4 percent of higher education, the industry didn’t attract much attention.

"But when you are at 12 percent of higher eduction, you suddenly start seeing that there are some pretty deep pockets out there," Miller said.

And while many of the lawsuits get tossed out by judges, there has been just enough success to keep them coming. Consider last year’s decision by Career Education Corp., the Hoffman Estates firm whose holdings include Sanford Brown, to pay $40 million to settle a lawsuit in San Francisco.

Students of its California Culinary Academy had claimed the school misrepresented its reputation and employment prospects students would face upon graduation.

These claims are fairly typical of those made in lawsuits that have been filed in the St. Louis area and across the nation, focusing on the information given to students during their recruitment.

Such is the case with the Madison County lawsuit, filed on behalf of students who enrolled in the 18-month medical assistants program at Sanford Brown’s Collinsville campus. Among the allegations are claims that prospective students were given misleading placement data — suggesting they would have an easier time finding jobs — and promises that their credits would transfer to other schools.

Among those students was Jenna Lilley, of Staunton, who enrolled in the program thinking it would further her goal of becoming a registered nurse. She said she made it nearly two semesters before learning her credits wouldn’t transfer. So she dropped out and started over at Lewis and Clark Community College.

That two-semester detour, she said, cost $9,000 in financial aid and loans, making it difficult to get aid at Lewis and Clark.

"I not only wasted my time and money, but I’ve missed out on opportunities I could have had," Lilley said. "I could already have been a nurse. Instead, I’m waiting tables and trying to work my way through college."

The case, so far, has not gone well for Sanford Brown and Career Education. The company, however, is appealing the class action certification and says the legal claims made in the lawsuit are without merit.

"While the trial judge has certified a class, he has made no findings that the school engaged in improper conduct or violated any law," said Mark Spencer, spokesman for Career Education.

It’s likely to be many months before the appeal is decided. But already, attorneys representing the students are giving thought to the possibility of additional lawsuits against other for-profits in the region.

"It’s something we are considering," said John Carey, of Carey, Danis & Lowe, which has partnered with a Kansas City firm that has targeted for-profits on multiple occasions. "I don’t think these schools, for the most part, are really helping their students."

The notion of lawyers actively seeking new cases isn’t exactly what the industry wants to think about — particularly in light of the resources being expended in Washington to fend off new regulations and requirements that, some say, could force the closing of some for-profit degree programs.

Among the bigger fears of the industry is the potential for one of the lawsuits to prove there was some sort of fraudulent activity traceable to the highest levels of these companies. But most say that’s unlikely to happen.

"They’ve got a lot of people working for them making sure they are following the rules. These are big companies," said Kevin Kinser, an education professor at the State University of New York at Albany who studies the for-profit sector.

The industry tends to be more vulnerable on the local level because of its heavy reliance on recruitment to fill classrooms. It’s not uncommon for some of that recruiting to be handled by outside firms, and recruiters have typically been paid, at least partially, based on the number of students they recruit.

There’s also a lack of clear-cut rules on what, exactly, those recruiters are allowed to say to prospective students, some industry observers say.

And yet even if the industry isn’t suffering financial losses in the courtroom, lawsuits do take their toll.

"It’s more than a monetary issue. It’s a reputation thing," Kinser said. "There is a drumbeat of negative attention."

STL TODAY

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