Federal investigation

More lawsuits target for-profit colleges

Disgruntled students, employees and shareholders have filed a flurry of lawsuits against for-profit colleges since a federal investigation last month found deceptive practices at 15 campuses.

The Government Accountability Office report was released Aug. 4, and class-action lawsuits have now been filed in California, Colorado, Arkansas and Utah by former students and employees, who argue in most cases that a school lied to them or misled them.

Some companies, including the University of Phoenix and Westwood College, closed campuses or launched internal investigations after the release of the report, which found that admissions officials in four cases encouraged applicants to commit fraud by lying on financial aid forms.

Shareholders have filed class-action lawsuits against at least five schools, noting the effect of the report on stock prices and citing securities fraud.

Lawsuits alleging deception at for-profit colleges are not new. Last year, the parent companies of the University of Phoenix and Westwood agreed to pay the federal government millions of dollars each to settle separate false-claims lawsuits. In both cases, the schools admitted no wrongdoing.

John McKernan, chairman of Education Management Corp., which operates about 95 schools in 31 states, including Argosy University, says lawsuits are part of the territory. "Statistically, the bigger you get, the more (complaints) you're going to have."

Tampa lawyer Jillian Estes, whose firm has represented students in several class-action suits against for-profits, including Westwood College, says she hopes the federal scrutiny will bolster students' cases.

"We've been trying to raise this flag for so long," she says. "It helps for judges to realize this isn't just some kids who are a little unhappy, but a nationwide systemic problem." Westwood in March sued Estes and her law firm for defamation.

A Texas agency has threatened to revoke or deny one company's licenses to operate three for-profit campuses there. One college received a similar warning in Wisconsin.

Still, tens of thousands of students say for-profit colleges are their best option. An unprecedented 91,000 public comments were submitted in response to a proposal that would deny federal student aid to for-profit colleges whose graduates don't earn enough to pay back student loans. The Education Department estimates one-third or more came from students worried that their college would close if the proposal is adopted.

(Published by USA Today - September 28, 2010)

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