For-profit college to cancel almost $500 million in student loan debt as result of settlement

Composite image. Campus photo by monkeybusinessimages/iStock/Getty Images Plus. Dollar banknotes by Lightbox/iStock / Getty Images Plus, St. George News

SALT LAKE CITY — Francine A. Giani, executive director of the Utah Department of Commerce, announced Wednesday that the Utah Division of Consumer Protection will receive settlement funds for students as the result of a $493.7 million nationwide lawsuit against Career Education Corporation.

CEC is a for-profit education company based in Schaumburg, Illinois, that currently offers primarily online courses through American InterContinental University and Colorado Technical University. CEC has closed or phased out many of its schools over the past 10 years. 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 the court filing, CEC agreed to reform it’s recruiting and enrollment practices and forgo collecting about $493.7 million in debts owed by 179,529 students nationally in a settlement with the Utah Division of Consumer Protection filed through the Utah Attorney General and 48 other attorneys general.

“This case is a triumphant win for CEC students whose for-profit school failed to deliver on empty promises,” Giani said in a press release from the Department of Commerce. “Often these institutions prey on a vulnerable population, working parents and students who are looking find careers outside traditional college degrees. Utah hopes this case sends a message to the industry that our attorneys will actively pursue cases to defend student’s consumer rights.

The Assurance of Voluntary Compliance filed Jan. 3 caps a five-year investigation. CEC agrees to forgo any and all efforts to collect amounts owed by former students living in the states participating in the agreement.

In Utah, 399 students will get relief totaling $980,547.39. Nationally, the average individual debt relief will be about $2,750. CEC has also agreed to pay $5 million to the states. Utah’s share will be $50,000 which will go to the Consumer Protection Education and Training Fund.

A group of attorneys general launched an investigation into CEC in January 2014 after receiving several complaints from students and a critical report on for-profit education by the U.S. Senate’s Health, Education, Labor and Pensions Committee. That investigation revealed evidence demonstrating the following:

  • CEC used emotionally charged language to pressure them into enrolling in CEC’s schools.
  • CEC deceived students about the total costs of enrollment by instructing its admissions representatives to inform prospective students only about the cost per credit hour without disclosing the total number of required credit hours.
  • CEC misled students about the transferability of credits into CEC from other institutions and out of CEC to other institutions by promising on some occasions that credits would transfer.
  • CEC misrepresented the potential for students to obtain employment in the field by failing to adequately disclose the fact that certain programs lacked the necessary programmatic accreditation.
  • CEC deceived prospective students about the rate that graduates of CEC programs got a job in their field of study, thereby giving prospective students a distorted and inaccurate impression of CEC graduates’ employment outcomes. For instance, CEC inaccurately claimed that its graduates were “placed” who worked only temporarily or who were working in unrelated jobs.

According to the Department of Commerce press release, as a result of the unfair and deceptive practices described above, students enrolled in CEC who would not have otherwise enrolled could not obtain professional licensure and were saddled with substantial debts that they could not repay nor discharge. CEC denied the allegations of the attorneys general but agreed to resolve the claims through this multistate settlement.

Robert McKenna, former Washington state attorney general and current partner at the San Francisco-based law firm of Orrick, Herrington & Sutcliffe, will independently monitor the company’s settlement compliance for three years and issue annual reports.

Under the agreement, CEC must do the following:

  • Make no misrepresentations concerning accreditation, selectivity, graduation rates, placement rates, transferability of credit, financial aid, veterans’ benefits or licensure requirements.
  • Not enroll students in programs that do not lead to state licensure when required for employment or that, due to their lack of accreditation, will not prepare graduates for jobs in their field. For certain programs that will prepare graduates for some but not all jobs, CEC will be required to disclose such to incoming students.
  • Provide a single-page disclosure to each student that includes: a) anticipated total direct cost; b) median debt for completers; c) programmatic cohort default rate; d) program completion rate; c) notice concerning transferability of credits; d) median earnings for completers; and e) the job placement rate.
  • Require students before enrolling to complete an Electronic Financial Impact Platform Disclosure, which provides specific information about debt burden and expected post-graduation income. CEC is working with the states to develop this platform.
  • Not engage in deceptive or abusive recruiting practices and record online chats and telephone calls with prospective students. CEC shall analyze these recordings to ensure compliance. CEC shall not contact students who indicate that they no longer wish to be contacted.
  • Require incoming undergraduate students with fewer than 24 credits to complete an orientation program before their first class that covers study skills, organization, literacy, financial skills and computer competency. During the orientation period, students may withdraw at no cost.
  • Establish a risk-free trial period. All undergraduates who enter an online CEC program with fewer than 24 online credits shall be permitted to withdraw within 21 days of the beginning of the term without incurring any cost. All undergraduates who enter an on-ground CEC program shall be permitted to withdraw within seven days of the first day of class without incurring any cost.

CEC has agreed to forgo collection of debts owed by students who either attended a CEC institution that closed before Jan. 1, 2019, or whose final day of attendance at AIU or CTU occurred on or before Dec. 31, 2013.

Former students with debt relief eligibility questions can contact CEC toll free at 844-783-8629 or email CECquestions@careered.com.

The CEC investigation was led by Iowa, Connecticut, Illinois, Kentucky, Maryland, Oregon, and Pennsylvania. The agreement also covers the District of Columbia and the following states: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

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10 Comments

  • Comment January 10, 2019 at 11:52 am

    diploma mills

  • tazzman January 10, 2019 at 12:39 pm

    CEC also claimed Brooks Institute of Photography as a victim when the son of the founder sold it to the corporation in 1999 after family ownership since 1945. It closed its doors in 2016.

  • Brian January 10, 2019 at 1:02 pm

    This boils my blood. This is exactly why the government never should have gotten involved in student loans in the first place! They give money to anyone with a pulse for any reason as long as they enroll in any school, then wonder why there is suddenly a flood of unemployable graduates with worthless degrees that offer zero value in a crowded marketplace.

    This settlement has just opened the floodgates and the taxpayers are going to get hosed. What a crock. And they’ve done the exact same things to mortgages (which is exactly why 2019 or 2020 will involve a recession bigger than the previous round that could last a decade) and to healthcare (which is why insurance from my family went from $10k per year to $32k per year and forced us entirely out of the “marketplace”).

    • Comment January 10, 2019 at 1:30 pm

      You could say “the problem is the gubmunt!” or “those damn libruls and their big gubmunt!”, but the root of the problem is a system run entirely by greed and stupidity. And that problem has become systemic in all parts of gov’t, and basically: society as a whole. It comes down to the fact that our gov’t is ruled over by corrupt swine, and it is that way because the public allows it. I have no idea what the fix is. Somehow make the general public less stupid & greedy than they are? But how?

      • Brian January 10, 2019 at 3:48 pm

        This problem was self-correcting when loans were given by businesses that wanted to make a profit or were accountable to investors. Had this happened before the government literally took over the entire student loan industry the school would have been out of business and the loan company would have been out of luck or out of business. Sucks to be them, but the people that invested with them should have done their due diligence better, or sometimes crap just happens. Investors know there is risk involved.

        As a tax-payer I didn’t invest in this school, didn’t invest in a company that offered student loans, had zero say in the matter, but am still financially on the hook. I’m forced into the situation literally at the barrel of a gun (try not paying your taxes for a few years, at some point it will be enforced at the barrel of a gun, literally). To make matters worse, the laws are crafted specifically in such a way that they directly benefit specific companies that politicians just happen to be financially connected to. There’s a reason almost all of the higher up or long-term politicians have amassed huge fortunes that far outweigh their pre-politician net worth or the cumulative salary they’ve made while in office.

        The government literally has zero business being in the student loan business. This has been a massive net loss for the country. Tuition has skyrocketed as a direct result of the government taking over student loans, millions of millenials are up to their eyes in debt with very little to show for it, and the tax payers are getting fleeced. This is just the tip of the iceberg. The flood gates will open now and students will be doing class action lawsuits left and right to get out of their student loans. Chalk up another trillion to the national debt.

        • Comment January 10, 2019 at 5:35 pm

          Well brian, I suppose you can blame ‘the libruls’ and ‘big gubmunt’, but the truth is pretty much everything is corrupt these days. It’s what happens when things go unregulated, when society is dumbed-down, and when congress is all greedy corrupt swine. If you want to become even more irate look into how for-profit diploma mills take advantage of the GI bill. A lot of these “degrees” these places print up are about as worthless as the paper they’re printed on, and many of these for-profit “colleges” cost more than universities. Don’t know what to tell you to do about it. Stay mad I guess.

    • bikeandfish January 10, 2019 at 9:39 pm

      As its being reported, this settlement deals with private loans, ie directly to CEC (hence the halting of collections) or indirectly (through banks or lenders). Federal loan forgiveness has a different process.

      • jaltair January 10, 2019 at 10:23 pm

        Thank you for clarification, you said it well, my comment would have been too lengthy.

  • Kilroywashere January 10, 2019 at 6:11 pm

    Excellent commentary by all.

  • Mike P January 11, 2019 at 11:38 am

    Kinda like that famous military promise. Join the military and learn a trade! You’ll get a great job when your service is completed. Just sign here and will GUARNTEE training as a Master Machinist ! Four years later, couldn’t find a job anywhere as a BOMB LOADER………

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