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AG’s office scrutinizing for-profit colleges

Loan practices, recruiting at issue

Martha Coakley has requested information on several schools. Martha Coakley has requested information on several schools. (The Boston Globe/File)
By Todd Wallack
Globe Staff / May 12, 2011

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Massachusetts Attorney General Martha Coakley is investigating the recruitment and student loan practices at several for-profit colleges in the state, the latest in a series of legal inquiries into the industry.

The Washington Post Co., which operates one of the largest chains of for-profit schools, said yesterday it received an inquiry on May 3 from Coakley’s office for information on its Kaplan Career Institute campus in Boston. A second company, Corinthian Colleges Inc., reported receiving a similar request from Coakley’s office about two of its local schools — Everest Institute campuses in Brighton and Chelsea — on April 29.

The inquiry comes at a time when for-profit chains have been under assault across the country for allegedly saddling students with onerous student loan debt while failing to adequately prepare them for jobs in their chosen fields.

Graduates of the proprietary schools have much higher delinquency and default rates on their student loans than those from traditional nonprofit and public schools, according to data released by the US Department of Education.

And the US General Accounting Office sent investigators posing as potential students to for-profit schools that depend on federal student loans for as much as 90 percent of their revenue. The GAO said all 15 schools it visited misled or made questionable statements about the cost of education, how much the prospective students would earn after graduation, and other issues.

And just last week, the Justice Department joined a whistle-blower lawsuit with 11 states, including Massachusetts, against another for-profit chain, Education Management Corp. The suit accused the company of illegally paying recruiters bonuses for signing up students at its schools, including the New England Institute of Art.

Coakley’s investigation also appears to focus partly on recruitment. Corinthian disclosed that Coakley requested information and documents about its recruiters and enrollment practices, as well as its student loan default and graduation rates, and any analyses its schools have of their students’ ability to repay their loans.

Kaplan’s parent company, the Washington Post Co., said Coakley requested information about recruiting and educational financing at its Boston campus, according to a filing with the Securities and Exchange Commission.

Both companies said they would cooperate with the attorney general.

Corinthian spokesman Kent Jenkins Jr. said he was not aware of any specific complaints at its campuses that would have prompted Coakley’s request. Kaplan said in a statement that it allows students to opt out of classes after a grace period and not face tuition or loan costs.

Brad Puffer, a Coakley spokesman, said he couldn’t comment on or confirm the investigation.

Other states have launched investigations, including Kentucky, Florida, Illinois, and Iowa. Kentucky Attorney General Jack Conway recently told reporters he is leading a joint investigation of 10 attorneys general into whether for-profit colleges are engaging in deceptive marketing practices.

“We’re entering a new phase of state activism without question,’’ said Jarrel Price, an education industry analyst with Height Analytics in Washington, noting the federal regulators have been investigating the industry for the past two years. “In the last couple months, we’ve really seen a lot more activity from the state attorneys general.’’

Nationwide, there are about 3,000 for-profit colleges, ranging from culinary academies to technical schools, with roughly 2 million students.

The US Department of Education already has adopted some new rules covering recruiters and proposed “gainful employment’’ regulations that would cut off funding to schools with the worst repayment rates. The US Senate education committee has held multiple hearings looking into for-profit colleges.

But the Washington Post Co. and other education companies are fighting the new federal regulations. For-profit schools insist they fill a valuable niche, providing critical employment skills to older workers and others who aren’t being served adequately by other schools. And they say their loan-repayment rates may be lower than some other schools simply because of the types of students they serve.

Washington Post Co. chief executive Donald Graham recently said the new regulations would be a “death sentence’’ for many for-profit schools serving large numbers of poor students. And he said it would force the company to focus on more affluent students who would be better able to pay off their loans.

“Whatever their aim, the proposed regulations hit the wrong target,’’ Graham said in a letter to shareholders. “They scored a direct hit on institutions that serve low-income students.’’

The company declined to comment further on the Massachusetts investigation. But Graham will probably talk more about the increased scrutiny on the industry at the company’s shareholder meeting today.

Some schools have also faced lawsuits on behalf of students. The parent company of the California Culinary Academy agreed to a $40 million settlement last year to settle allegations that it lied about its job placement rate and other facts.

Price, the industry analyst, said many schools have already cut back on incentives for recruiters, become more selective in accepting students, and made other changes to avoid running afoul of regulators. He said enrollment has fallen by 20 to 50 percent in the past year.

“It’s very, very significant,’’ Price said. “The industry is contracting rapidly.’’

Todd Wallack can be reached at twallack@globe.com.

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