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For-Profit College Probed by State for Sales Tactics

November 22nd, 2005 No comments

Wall Street Journal
By John Hechinger

Florida’s attorney general is investigating whether Florida Metropolitan University, a for-profit college, used misleading sales tactics to sign up students for courses and degrees that often wouldn’t be accepted for credit at traditional schools.

The move by the state’s top legal officer, Charlie Crist, adds to intensifying government scrutiny of the fast-growing for-profit educational industry. Christopher Kise, Mr. Crist’s chief litigator, called the civil investigation a “priority” and said the attorney general has “significant concerns” about Florida Metropolitan’s business practices.

Corinthian Colleges Inc., one of the nation’s largest chains of for-profit schools, owns Florida Metropolitan, which has 10 campuses and more than 11,000 students in the state. “We believe we are in compliance with all applicable regulations,” said Anna Marie Dunlap, senior vice president for investor relations at Corinthian, which said it was cooperating with investigators.

The Florida probe comes as the financial success of for-profit colleges is sparking fierce debate in Congress over the value of the education offered at these career-oriented schools. Such colleges used to focus on vocational certificates in fields such as auto repair but have branched out in recent years to provide bachelor’s and professional degrees.

Corinthian, based in Santa Ana, Calif., and other big publicly traded companies that dominate the field have faced numerous lawsuits and government investigations. In part as a result, their stocks, once highfliers, have dropped sharply over the past year. Corinthian shares fell 43 cents, or 3.5%, to $11.95 in 4 p.m. Nasdaq Stock Market composite trading yesterday.

In a regulatory filing, Corinthian disclosed it had received a subpoena from the Florida attorney general last week asking for five years of information about Florida Metropolitan’s advertising and sales practices, including the training and compensation of admissions representatives, student complaints and lawsuits.

Florida’s Mr. Kise said the state, which had looked into complaints about FMU in the past, decided to subpoena the company this month after he read a page-one Wall Street Journal article on Sept. 30 that focused on complaints from more than 100 students in four lawsuits filed in state courts in Florida. The students said they were left with heavy debts — some with tens of thousands of dollars in student loans — and the prospect of having to repeat their studies because traditional schools rejected the credits or degrees they got from FMU. One of those cases, filed in Broward County Circuit Court in Fort Lauderdale, was referred to an outside arbitrator, who ruled in Corinthian’s favor. The company said another one of those cases, filed in Hillsborough County Circuit Court in Tampa, was recently sent to an arbitration panel.

The students said school officials told them other schools would accept their work, contrary to the university’s written disclosures, signed by students, that said such transfers weren’t guaranteed. Mr. Kise said investigators want to know if such assurances were “a regular practice.” Corinthian has denied offering any assurances, and Ms. Dunlap called the lawsuits “baseless.”

Mr. Kise said Florida was looking into whether FMU violated any laws against deceptive and unfair trade practices, and of broader anticonspiracy laws. If the state files a lawsuit, it could seek up to $10,000 in penalties for each violation, as well as restitution and damages for students, he said. Mr. Kise said the probe was preliminary and might not result in civil charges.

Florida’s investigation will highlight the little-understood way that higher education has established quality control since the 19th century. Traditional nonprofit schools — whether public, private or state funded — must pass muster with longstanding regional accrediting bodies. For-profit schools, including Florida Metropolitan, generally get their seals of approval from newer, national accrediting organizations. Schools with the more established regional accreditation often reject credits or degrees from schools credentialed by the newer bodies, viewed by traditional schools as less rigorous.

Congress, spurred on by Corinthian and other for-profit colleges that say their students are being unfairly rejected, is considering legislation that would make it difficult for traditional schools to reject work from nationally accredited schools. The bills are hotly opposed by traditional schools.

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