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Post date: August 19 2013

A.G. Schneiderman Announces Groundbreaking $10.25 Million Dollar Settlement With For-Profit Education Company That Inflated Job Placement Rates To Attract Students

Agreement Goes Above And Beyond Federal And State Requirements For For-Profit Education Industry

NEW YORK – Attorney General Eric T. Schneiderman today announced a $10.25 million settlement with Career Education Corporation (“CEC”), a for-profit education company. The settlement resolves an investigation that revealed that in disclosures made to students, accreditors, and New York State, CEC significantly inflated its graduates’ job placement rates. CEC will pay $9.25 million in restitution to students, a $1 million penalty, and has agreed to substantial changes in how the company calculates and verifies placement rates.

“Students pay thousands of dollars to for-profit colleges because they rightly believe education is the ticket to success in their careers. That’s why it’s so unfortunate that this company exploited students’ aspirations and published misleading information,” said Attorney General Schneiderman. “Students deserve – and the law requires – accurate data when schools publish it for prospective students.”

CEC is headquartered in Illinois and operates seven career-focused schools in New York: Sanford-Brown Institute campuses in Garden City, Melville, White Plains and New York City; and Briarcliffe campuses in Bethpage, Patchogue, and New York City. CEC also operates several on-line schools, including American InterContinental University and Colorado Technical University. CEC currently enrolls 75,000 students worldwide.

The Attorney General’s Office investigation revealed that CEC inflated its job placement rates from at least 2009 through spring 2011 and used the inflated placement data to lure prospective students to attend their schools.

Students invested thousands of dollars and months or even years of study in CEC’s programs because they were confident that completing CEC’s programs would lead to job opportunities in their chosen field. The inflated job placement rates misled students about the real chances that CEC’s programs would result in employment in their field.

CEC employees used several improper methods to inflate CEC’s placement rates including counting graduates’ employment at single one-day health fairs, some of which were held at the request of CEC and mischaracterizing graduates’ job duties in order to improperly count such students as employed in the field in which the student trained or a related field. For example, certain CEC Career Service employees improperly counted graduates of Criminal Justice programs who were employed in retail sales positions as having obtained “in field” placements. For the school years 2008-2009 and 2009-2010, CEC disclosed annual placement rates for its New York campuses ranging from 54.9% to 80.2%, when the correct placement rates ranged from 24.1% to 64.1%. Thus, the published placement rates contained in school catalogs and on CEC’s public website gave the misleading impression to current and prospective students that a higher percentage of graduates were employed in their field of study or a related field than was actually the case.

CEC’s accreditors -- private, non-profit organizations that are supposed to monitor the quality of post-secondary schools and colleges -- failed to identify that CEC was inflating and misreporting its placement rates. Some of its accreditors, such as the accreditor for Sanford-Brown Institute, require that schools meet certain minimum placement rate thresholds (typically at least 65%) or risk losing their accreditation. In some cases, had CEC correctly reported its placement rates, these rates would not have met these minimum placement rate requirements and the school or program would potentially risk losing its accreditation.

The Attorney General’s investigation also uncovered that CEC failed to adequately disclose to prospective students that certain of its programs lacked programmatic accreditation, and that, as a result, graduates of such programs were unable to immediately sit for qualifying exams upon graduation, and thus were highly unlikely to obtain employment. CEC also failed to adequately disclose to prospective students that credits earned at certain CEC schools are not, in most cases, transferable to public or non-profit degree granting colleges.

After the Attorney General commenced his investigation, CEC fired employees and high level managers who were involved in the inflation and misreporting of placement rates. CEC also undertook steps to review and modify its placement rate practices.

Under the agreement reached by the Attorney General, CEC must pay $9.25 million that will be used to compensate students who graduated from New York campuses and other New York residents graduated from online programs. The agreement also imposes stringent rules for calculating and disclosing placement rates going forward that exceed the requirements of CEC’s accreditors. The agreement requires CEC to hire an independent company to verify all placement rates recorded by CEC employees for a three-year period and imposes requirements for what types of employment may be counted as a “placement”. The agreement also requires CEC to provide adequate placement assistance services to students to aid them in finding jobs after graduation.

The Attorney General’s agreement goes far beyond what is currently required of for-profit colleges by state or federal law and by the accreditors. For example, to ensure that job placements are real and provide permanent employment, the Attorney General’s agreement requires CEC to verify employment after the graduate has completed at least 18 days of employment. In contrast, accreditor rules permit verification of employment after only one day. In addition, the agreement requires CEC to stop offering programs that have very low job placement rates. The agreement also prohibits CEC from offering programs that are not accredited or in the process of obtaining accreditation where, as a result of the program’s lack of accreditation, graduates are not eligible to sit for qualifying exams or obtain other credentials. The agreement also requires CEC to provide adequate disclosures concerning the accreditation status of its programs and the lack of transferability of credits from CEC schools to most other schools.

The case was handled by Assistant Attorneys General Jeanna Hussey and Melvin Goldberg and Special Counsel Carolyn Fast of the Consumer Frauds and Protection Bureau under the supervision of Laura J. Levine, Deputy Bureau Chief of the Consumer Frauds and Protection Bureau; Bureau Chief Jane M. Azia; and Karla G. Sanchez, Executive Deputy Attorney General for Economic Justice.

Click here for information on who is eligible for restitution.