Career Education’s Inadequate Response to Job Placement Rate Abuses

A day after Career Education Corporation’s chief executive officer abruptly resigned, company officials acknowledged on Wednesday that a significant number of their schools had cooked the books on their job placement rates. “We have uncovered the fact that what were going to be reported as placements in a number of cases and a number of places were not genuine placements according to our standards as a company,” Steve Lesnik, the company’s chairman, said during a conference call with financial analysts.

We at Higher Ed Watch applaud Career Education for coming clean about abuses that occurred at their institutions over the last year (although it would be helpful to know exactly what happened at these schools). However, we believe that the measures the company is taking to clean up the mess are wholly inadequate, as they leave students and taxpayers on the hook for the company’s misbehavior.

At issue are the rates that for-profit college companies are required to report to regulators and disclose to prospective students measuring their schools’ success in placing graduates into jobs related to their training.

In August, executives at Career Education alerted financial analysts and investors that they had found that some of the company’s health professional schools had engaged in “improper practices” in calculating their job placement numbers for the 2010-11 academic year. Company officials did not disclose the nature of the problems, which they said they discovered while preparing a response to a subpoena from the New York attorney general. But the violations were serious enough to prompt them to hire an outside law firm “to review the determination of student placements” at their more than 80 U.S. campuses.

On Monday, the company disclosed that the law firm had “confirmed the existence of improper placement determination practices at a number of its Health Education Segment Schools.” In addition, the firm discovered that “certain placements” at both the Health Education and Art & Design segment campuses “lacked sufficient supporting documentation or otherwise did not meet applicable placement guidelines established by the Company.”

In light of these findings, Career Education officials revised the 2010-11 job placement numbers for the 49 schools involved and discovered that only 13 of them had actual rates high enough to meet the Accrediting Council for Independent Colleges and Schools’ minimum standard of 65 percent. Schools that fail to meet this threshold face a number of possible penalties, including having their accreditation suspended and their access to federal student aid cut off.

But this might just be the tip of the iceberg, as the law firm has not yet completed its investigation. During Wednesday’s conference call, company officials revealed that the lawyers are now examining whether similar abuses have occurred at the company’s other three units: American Intercontinental University, Colorado Technical University, and the Culinary schools. Together, these schools accounted for nearly three-quarters of the company’s profits in 2010, according to BMO Capital Markets.

The law firm is expected to complete its work in four to six weeks. In the meantime, company officials said that they are going to concentrate on “rooting out” the problems that have already been identified at the Health Education and Arts & Design schools – by, for example, strengthening the standards campuses are to use for determining job placements, and requiring employees to undergo more rigorous training.

They also said that they plan to expand the ranks of career service staff to provide graduates with more extensive help in finding jobs. In addition, they are planning to cap enrollments or teach out programs in fields in which job opportunities may be scarce in the current economic environment.

These measures do not go nearly far enough.

For one thing, Career Education officials revealed on Wednesday that they have not looked, and do not intend to look, at how long these abuses have been occurring. Asked on the conference call about the accuracy of prior years’ reporting, Michael Graham, the company’s chief financial officer, said, “The focus was on the current year and current year data.”

“I wouldn’t speculate on the data going backwards,” he said. “We know the issue and we’ve given the new data to ACICS, and we go forward with the plan to get above 65 percent this year.”

For another thing, the company doesn’t appear to be interested in providing relief to students who made the decision to enroll at these schools based on the inflated data that was disclosed to them. Asked several times during the call about what they were going to do to alert students about the law firm’s findings, Career Education officials said that they are simply going to update the company’s website with the revised job placement rate data.

Neither of these answers is acceptable. There’s plenty of reason to suspect that the abuses that were uncovered during this investigation have been going on for years, and in fact would still be going on if it had not been for the New York Attorney General’s subpoena. Meanwhile, scores of low-income and working class students have been misled into enrolling at these schools and taking on huge amounts of federal and private student loan debt that they may never be able to repay.

We fully expect that ACICS and federal and state regulators will demand a full accounting from Career Education to determine the harm that has been done to students and taxpayers alike. Anything less would be an abrogation of duty.