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Shareholders Sue For-Profit College Company for Misleading Students

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The Career Education Corporation is facing a lawsuit for improving job placement and graduation data.

CREDIT: iStockphoto / mariusFM77

One of the largest and arguably most troubled for-profit colleges is facing a new lawsuit over its job placement figures.

Shareholders are suing Career Education Corporation, claiming that the company doctored its graduation and job placement statistics in order to avoid losing its accreditation and eligibility for federal funding.

According to the shareholders’ complaint [PDF], filed by Kharran Bangari, federal funding represents about 80 percent of revenue for the more than 90 professional schools run by CEC, making the company largely dependent on its ability to access Title IV funding programs, which in turn require schools to remain accredited by meeting certain quality standards. 

The lawsuit adds to a growing number of issues facing for-profit colleges and universities. A recent GAO report called the industry out on its claims that lower student success rates were due to the large percentage of “high-risk” students taking for-profit courses rather than the quality of the courses.

In August, an investigation revealed that several of the company’s 49 Health Education and Art & Design schools failed to meet the 65 percent job placement rate required to maintain accreditation. The findings prompted CEC’s top executive to resign.

But instead of trying to improve the quality of the educational services being offered, shareholders claim, CEC just doctored its data.

Bangari accused the company of being dishonest with prospective students about its schools’ effectiveness in preparing them for the workplace, saying “the revelation that for years CEC has effectively been lying to prospective students about their very reason for enrollment puts CEC institutions at a serious competitive disadvantage.” He also noted that CEC is under investigation by the attorneys general of New York and Florida.

CEC claims to have hired an external counsel to undertake an internal investigation into allegations of “improper practices.”

In announcing the investigation in August, then-President and CEO Gary E. McCullough said that “the integrity of Career Education and its schools is paramount. … We will take all steps necessary to ensure we accurately determine and report placement rates in the future.” When McCullough resigned in November, the company’s stock plunged nearly 50 percent.

This lawsuit is another sign that for-profit educational institutions are now facing pressure from all sides.

Students who feel ripped off after paying for degrees and courses that didn’t help them find work are becoming more skeptical; government officials looking to address the problem of student debt and allocate sparse funds effectively are now investigating such institutions. Add growing attention to their poor success rates in mainstream media outlets like the New York Times, and now from shareholders who are concerned about their investments and the shortcomings of the for-profit business model, and the industry is clearly facing increased pressure—but that doesn’t mean its inherent problems have been solved.

Alyssa Battistoni is a staff writer for Campus Progress. You can follow her on Twitter at @alybatt.

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