For-Profit Colleges Face New Wave of State Investigations

By Bloomberg | Examiner (Washington, D.C.), The, January 30, 2014 | Go to article overview

For-Profit Colleges Face New Wave of State Investigations


Bloomberg, Examiner (Washington, D.C.), The


For-profit colleges, bruised by years of investigations and rule- making, may face additional financial pressure from a new wave of state probes by attorneys general and the U.S. Consumer Financial Protection Bureau.

Education Management Co., the education chain partly owned by Goldman Sachs Group Inc.; Corinthian Colleges Inc.; ITT Educational Services Inc.; and Career Education Corp. have said since Friday that they've received demands for information from a network of at least 12 attorneys general. The Federal Trade Commission has stiffened guidelines for marketing vocational training programs, which many for-profit colleges offer.

The CFPB, created in 2011 to regulate financial products, has said it's preparing to tackle student debt, which has climbed to $1.2 trillion and is pervasive among former students at for-profit colleges. Richard Cordray, head of the consumer bureau and a former Ohio attorney general, said in written testimony to a House panel yesterday that the bureau has received thousands of complaints and comments about private student loans and debt.

"A coordinated approach benefits all the parties involved," Kentucky Attorney General Jack Conway, who is chairman of a group of state attorneys general investigating the education industry, said in a telephone interview. "It helps to have federal agencies looking at this as well in order to make sure that federal education money and taxpayer dollars are being spent wisely."

If they find wrongdoing, attorneys general typically file civil suits that seek monetary damages or restitution and changes in corporate behavior, said Allison Martin, a spokeswoman for Conway.

Obama's pledge

President Barack Obama pledged in his State of the Union address Tuesday to "work with Congress to see how we can help even more Americans who feel trapped by student loan debt." Sabrina Simone Jenkins, a former DeVry Education Group Inc. student with $90,000 in education loan debt, was invited to sit in the first lady's box, the White House said yesterday.

"The challenges she and other students face in financing their studies is also a concern, shared across higher education, and an issue that we continue to work on with the Administration and Congress," Ernest Gibble, a DeVry spokesman, said in an email. DeVry hasn't received a subpoena, he said.

Education Management, which is 43 percent owned by New York- based Goldman Sachs, slid 8.5 percent to $7.94 at the close in New York. ITT Educational, based in Carmel, Indiana, dropped 5.8 percent to $37.32, and Santa Ana, California-based Corinthian Colleges fell 1.3 percent to $1.49. Career Education, based in Schaumburg, Illinois, declined 5.7 percent to $5.58.

Increased scrutiny

"Increased scrutiny from the CFPB, combined with recent coordinated actions by the group of state AG's, suggests continued and perhaps increasing pressures on the for-profit education industry," said Peter Appert, an analyst with Piper Jaffray & Co. who's based in San Francisco.

The investigations add to the woes for-profit colleges have felt since Congress, U.S. attorneys and the Education Department intensified scrutiny of industry marketing and other business practices in 2010. At the same time, competition for students has grown as more for-profit and traditional universities have offered online classes.

Average annual enrollment at Apollo Education Group Inc., owner of the University of Phoenix, dropped to 310,100 at the end of August 2013 from 460,900 in 2010, according to corporate filings. The company hasn't received demands for information in the latest wave of investigations, Ryan Rauzon, a spokesman, said in a telephone interview.

Primary factor

"The industry fundamentals have deteriorated," Appert said in an interview. "That's the primary factor now, more than the regulatory issues facing the industry."

The other states that have sought information from education companies are Arkansas, Arizona, Connecticut, Idaho, Iowa, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and Washington. …

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