For-profit chain scraps $ 494 million in student debt to end government investigation
Nearly 180,000 former students at Career Education for-profit schools are not required to repay the $ 494 million they owe the company, a group of 49 attorneys general said Thursday.
The agreement to wipe out debts held directly by Career Education, such as unpaid tuition fees, ended a five-year investigation in multiple states into complaints that the company used predatory and fraudulent recruitment tactics.
Career Education has misled students about the cost of their programs and the career prospects of their graduates, said Tom Miller, the Iowa attorney general, whose office supported the state investigation. In some cases, Career Education billed students for vocational training who lacked the required accreditation to obtain a license and work in their field according to the accounting records.
Career Education, based in Schaumburg, Illinois, denied any wrongdoing. Todd Nelson, the company’s chief executive officer, called the deal an “important milestone” in his turnaround efforts. The company was once one of the largest for-profit education chains in the country, but has shrunk to about a third of its former size as state and federal regulators step up scrutiny of the types of vocational training programs it runs.
The debt that was eliminated averaged $ 2,750 per person. Career Education has already written off most of it as bad debt, according to an official application on Thursday. Only $ 1.3 million remained active in the company’s financial statements.
Until recently, Career Education had been trying to collect a significant portion of the nearly $ 500 million owed it by alumni, according to Jessica Whitney, the Iowa Attorney General’s director of consumer protection. That effort must stop now, she said, and the company must ask credit bureaus to remove this debt from borrowers’ credit reports.
The transaction affects Career Education debt only and does not include federal student loans administered by the Department of Education or private student loans owed to other lenders. The only state not included in Thursday’s deal, California, is preparing its own settlement with Career Education, the company said.
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The Department of Education can make federal loans to students who have been defrauded by their schools through their borrower defense program. According to public records collected by researchers, at least 2,000 former VET students have applied for this relief, but the Department of Education has not yet made a decision on any of these applications.
State investigators have offered to share their findings with the Department of Education, Ms. Whitney said. Borrowers who file a new application to defend the borrower or have one pending “can certainly use the facts of the case as evidence” to support their claim, said Liz Hill, a spokeswoman for the education department.
At the height of vocational training, more than 100,000 students were enrolled in 100 locations around the world, including the Le Cordon Bleu culinary school chain and the professional Sanford-Brown colleges and institutes.
But a series of lawsuits and national regulatory crackdowns against for-profit schools have severely diminished their financial assets. In 2015, the company decided to close most of its locations. The two remaining chains, American InterContinental University and Colorado Technical University, which operate primarily online, enrolled about 35,000 students last year.
The settlement requires Career Education to provide its students with a unilateral disclosure that clearly describes the expected cost of their program, as well as a graduate’s typical debt and income on a student loan. It also has to pay for an external monitor to check compliance with various consumer protection regulations.
The listed company’s shares finished trading Thursday, up 2 percent to $ 11.74.