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For-profit education company inflated job placement rates

ideabug/istockphoto.comCareer Education Corporation says some of its health education campuses misled students with inflated job placement rates.

A for-profit education company with five locations in California has admitted that some of its health education campuses reported inflated job placement rates for its graduates.

The announcement comes as the Illinois-based Career Education Corporation has tentatively agreed [PDF] to pay $40 million to settle a class-action lawsuit involving another of its subsidiaries, the California Culinary Academy in San Francisco. In that case, former students claimed they had been duped by the college's claim that 97 percent of graduates got jobs in the field.

Career Education Corporation reported in an Aug. 3 filing with the Securities and Exchange Commission that the company discovered inaccuracies in its job placement rate calculations while gathering information to respond to a New York attorney general's subpoena filed in May.

In addition to Career Education Corporation, the New York attorney general also is investigating two California-based operations, Bridgepoint Education of San Diego and Corinthian Colleges of Santa Ana, as well as Lincoln Educational Services and Trump Entrepreneur Services.

Career Education Corporation enrolls more than 100,000 students at 90 campuses in the United States and abroad. Its domestic brands include American InterContinental University, Brooks Institute, Colorado Technical University, Harrington College of Design, Sanford-Brown Colleges and Institutes, International Academy of Design & Technology, and Le Cordon Bleu North America, which includes San Francisco's California Culinary Academy.

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In an Aug. 4 conference call with investors, Career Education Corporation President and CEO Gary E. McCullough said the company has asked outside counsel Dewey & LeBoeuf to conduct an investigation into placement rate practices at all of the company's domestic campuses, not just the health segment.

He characterized the problem as the result of the actions of rogue employees, rather than a widespread practice.

"For me, as the leader of our company, these findings I’ve described are very, very disappointing," McCullough said. "The actions of a few people have let down others who work hard and responsibly every day on behalf of our students."

Yet lawsuits by former students claim Career Education Corporation's culinary schools have systematically overstated job placement rates.

In the class-action suit filed in San Francisco, the complaint said California Culinary Academy's admissions representatives and its catalog boasted a job placement rate of 97 percent. What the college didn't tell applicants was that the statistics included graduates working as Starbucks baristas, prep cooks, line cooks and waiters, the complaint states.

Wages for a "substantial majority" of the jobs included in the statistics paid $12 an hour or less, the complaint contends.

One of the plaintiffs, Matt Foist, paid the California Culinary Academy at least $46,000 through student loans to pursue his dream of becoming a chef. But after graduation, he couldn't find a culinary job that paid enough to repay his loans, and he returned to his previous job as a computer programmer, according to the lawsuit.

The complaint also said that in some cases, college personnel made up fake job placements. The California Culinary Academy listed one plaintiff, Gloria Barrientos, as being placed with a job at Fifth Floor restaurant in San Francisco, for example. But Barrientos had never worked there, according to the lawsuit.

The $40 million settlement agreement for that case won preliminary approval in March, and a hearing on final approval is expected later this month.

Career Education Corporation spokesman Mark Spencer said in a statement that the company believes its practices were legal but decided to settle to avoid costly litigation. He also said the company has modified its practices for reporting job placement rates, admissions and advertising.

"While we believe our previous practices were legal, we have been very conservative in modifying our policies and procedures to ensure that students understand that we are not promising any specific job outcomes or salaries – something always on our disclosure forms – and that they are responsible for evaluating their local job markets to determine if this is a career path they want to pursue," Spencer wrote in an e-mail.

The same attorneys who represented the plaintiffs in the San Francisco college case also have filed a lawsuit in Los Angeles County Superior Court that makes similar claims about overstated job placement rates at Career Education Corporation's Le Cordon Bleu College of Culinary Arts in Los Angeles. That case is pending.

The lawsuit claims the Los Angeles college advertised placement rates of 75 percent to 96 percent for the culinary arts program and about 75 percent for the patisserie and baking program – rates the complaints claim were fraudulent. Spencer said he's confident Career Education Corporation will prevail in that case.

An attorney for the plaintiffs could not be reached for comment yesterday.

New regulations issued this summer by the U.S. Department of Education aim to address whether career-college students actually improve their earning potential upon graduation. Students at for-profit institutions represent 12 percent of all higher-education students and 46 percent of all student loan dollars in default. Those statistics, coupled with investigations uncovering fraud and abuse in the sector, led regulators to zero in on for-profit colleges.

Under the new "gainful employment" regulations, college programs would be considered to lead to gainful employment if at least 35 percent of former students are repaying their loans, or if they meet one of two other measurements. The regulations take effect in 2012.

In the conference call, Career Education Corporation Executive Vice President and Chief Financial Officer Michael J. Graham said he expects some of the company's education sectors to comply with the new gainful employment regulations. But the culinary business will require "changes in the business model" to ensure programs comply.

Filed under: Higher Ed, Daily Report

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