For-profit college chain to forgive $556 million in student debts

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Career Education, a for-profit college operator, will forgo collection of $556 million in debt owed by former students to resolve allegations of deceptive recruiting and enrollment practices.

The Illinois company once ran a host of vocational schools, including Le Cordon Bleu and Sanford-Brown, but closed or offloaded many of them in the past 10 years amid tepid enrollment. It landed in the crosshairs of several state attorneys general in 2014, after mounting consumer complaints about claims the company made regarding the cost and value of its credentials.

The investigation was led by Maryland, Iowa, Connecticut, Illinois, Kentucky, Oregon and Pennsylvania, though 48 states and the District of Columbia signed onto the agreement. Career Education has settled with New York and expects to come to a separate agreement with California that will bring the total debt relief to $556 million.

“The company misled students,” Maryland Attorney General Brian Frosh said in a statement Thursday. “It claimed that students would get better jobs and earn more money, but its substandard programs failed to deliver on those promises. The school encouraged these students to obtain millions of dollars in loans, placing them at great financial risk.”

Prosecutors say Career Education instructed its staff to inform prospective students only about the cost per credit hour without disclosing the number of required credit hours. Admissions representatives allegedly lied about graduate employment and failed to disclose that some programs lacked the accreditation required by licensing boards.

Though Career Education denies all wrongdoing, it agreed to stop pursuing debts incurred during the past 30 years by students at more than 100 campuses. The company said it had already written off all but about $1.3 million of the old accounts. It also agreed to reform its recruiting practices and pay $5 million in total to the states. An independent monitor will oversee the company’s compliance for three years and issue annual reports.

“The resolution of this open inquiry is an important milestone for the company that coincides with the completion last month of a multi-year process of teaching out and closing our transitional campuses,” Todd Nelson, chief executive at Career Education, said in a statement. “We have remained steadfast in our belief that we can work with the attorneys general to demonstrate the quality of our institutions and our commitment to students.”

Under the agreement, 2,784 Maryland students will receive debt relief totaling more than $8.5 million and 484 District residents will receive $2 million in forgiveness. Figures for Virginia were not immediately available.

“This settlement brings much needed relief to our residents and is a warning that we will pursue action against other predatory for-profit colleges that lure students into debt with false promises of lucrative future careers,” District Attorney General Karl Racine said in a statement.