Draining the Swamp

debt2Yet another for profit school, DeVry University has agreed to pay $100 million to settle a Federal Trade Commission lawsuit alleging the for-profit college misled tens of thousands of students about their job prospects and income levels after graduating from the school.

The agreement requires Downers Grove Illinois based DeVry to pay $49.4 million to students harmed by the deceptive advertising. The settlement also includes $30.35 million to forgive all private unpaid student loans issued to undergraduates between September 2008 and September 2015, and $20.25 million for tuition, books and lab fees. The settlement is the latest since the Obama administration began a crackdown in 2011 on the for-profit college industry, taking on everything from inflated job placement claims to predatory financial practices. Government investigations and sanctions have led to several high-profile closures.

California-based Corinthian Colleges sold or closed most of its 107 campuses and liquidated its assets through Chapter 11 bankruptcy last year after it was sued by the Consumer Financial Protection Bureau for deceptive practices. The U.S. Department of Education has agreed to forgive $171 million in student debt held by former Corinthian students. In September, ITT Technical Institute ceased operations at its more than 130 campuses nationwide after the Education Department cut off access to federal financial aid for new students over accreditation criteria. On Monday, the Education Department ended federal recognition of the Accrediting Council on Independent Colleges and Schools, which provided accreditation for several for-profit colleges, citing “pervasive noncompliance.” The accrediting council filed a federal lawsuit against the department on Thursday in a bid to restore recognition.

In January, the FTC filed suit against DeVry, alleging the company deceived consumers by claiming a 90 percent placement rate within six months of graduation. DeVry promoted these claims in TV, radio, online and print advertisements. The complaint also alleged that DeVry misled students by claiming graduates had 15 percent higher incomes one year after graduation than those with bachelor’s degrees from other colleges or universities. “When people are making important decisions about their education and their future, they should not be misled by deceptive employment and earnings claims,” FTC Chairwoman Edith Ramirez said announcing the DeVry settlement. “The FTC has secured compensation for the many students who were harmed, and I am pleased that DeVry is changing its practices.” DeVry Education Group said in a news release it chose to settle the lawsuit after “denying all allegations of wrongdoing.”

Under the terms of the settlement, which is still pending final approval in federal court, DeVry is required to notify students eligible for debt relief by email and mail within 30 days of the order, and to inform credit bureaus and collection agencies of the debt forgiveness. All loan and debt forgiveness will occur automatically. The company also must release transcripts and diplomas withheld from students because of outstanding debt. In October, DeVry reached a settlement agreement with the Education Department to stop promoting unsubstantiated job placement claims. In March, the Department of Veterans Affairs suspended DeVry from its Principles of Excellence program in the wake of allegations that the college misled students about job placement success. Founded in Chicago in 1931 as the DeForest Training School, the school’s earliest mission was preparing students to work in electronics, film and radio/TV, per its website. It was renamed DeVry in 1953, expanding its programming offerings and locations over the years. Publicly traded DeVry has more than 55 campuses nationwide, including nine in the Chicago area.

The FTC settlement secures significant financial redress for tens of thousands of students harmed by DeVry’s conduct. Under the settlement resolving the FTC charges, DeVry will pay $49.4 million in cash to be distributed to qualifying students who were harmed by the deceptive ads, as well as $50.6 million in debt relief. The debt being forgiven includes the full balance owed—$30.35 million—on all private unpaid student loans that DeVry issued to undergraduates between September 2008 and September 2015, and $20.25 million in student debts for items such as tuition, books and lab fees.

The FTC’s complaint charged that DeVry misled consumers in violation of the FTC Act by claiming that 90 percent of graduates actively seeking employment landed jobs in their field within six months of graduation. Advertisements making these claims appeared on television and radio, as well as online and in print and other media.

The proposed federal court order requires DeVry to notify the students who will receive debt relief, and to inform the credit bureaus and collection agencies of the debt forgiveness. All loan and debt forgiveness will occur automatically. DeVry will also release transcripts and diplomas previously withheld from students because of outstanding debt and will cooperate with future requests for diplomas and transcripts and related enrollment or graduation information. The settlement also includes provisions designed to prevent DeVry from misleading consumers in the future. Among other things, it prohibits DeVry from misrepresenting the likelihood that graduates will get a job because of their degree. It specifically prohibits DeVry from including jobs students obtained more than six months before graduating whenever DeVry advertises its graduates’ success in finding jobs near graduation. The settlement also prohibits DeVry from misrepresenting the compensation or compensation ranges that students or graduates have received or can be expected to receive.

The FTC sued DeVry last year, alleging the company touted a job placement rate of 90% without evidence to back it up. The agency uncovered evidence that DeVry considered a server at the Cheesecake Factory and a sales associate at Macy’s who had degrees in technical management to be working in their field of study. As part of the deal, DeVry agreed that any time the company makes a claim about job placement rates of a class of students, it has to save documentation related to that claim, including files related to the students or graduates. “DeVry often presents itself as a better actor in the sector, but what this settlement shows is that they are not immune to the pressures of the sector to bring students in the door and to generate revenue,” said Elizabeth Baylor, the director of postsecondary education at the Center for American Progress.

DeVry neither admitted nor denied wrongdoing as part of the settlement. The company is “pleased this matter is reaching a resolution,” Ernie Gibbles, a DeVry spokesman, wrote in an emailed statement. “At no time has the academic quality of a DeVry University education been question.” The deal comes as the Obama administration looks to cement its legacy as a tough enforcer in the higher education space, specifically for-profit colleges. DeVry agreed in October to reserve $68 million to settle claims brought by the Department that the school used misleading advertisements. The agency required the company to set aside the money to continue receiving access to federal financial aid. DeVry’s access to federal student aid also isn’t impacted by the FTC settlement, the company said in a statement. The deal marks the second roughly $100 million settlement reached by a federal government agency with a for-profit college this year. But the eye-popping number likely won’t affect DeVry’s ability to operate, given that DeVry collected more than $1 billion in financial aid during the 2014 to 2015 school year, per Baylor. What’s more, the actual cost of the settlement to DeVry is much lower than the $100 million touted by the FTC. In securities filings, the company said it expects to record a pretax charge of between $52 and $55 million because of the deal. “The settlement will cost DeVry much less than $100 million, since the corporation has long known that many students would never be able to repay the private student loans that were pushed on them,” Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau, said in an email. “DeVry’s stock has surged since Election Day, and their recent legal settlements won’t stop the flow of federal funds into company coffers.”  DeVry and other companies in the higher education sector have seen their stocks rise in the wake of the election, amid indications that a Trump administration will be friendlier to for-profit colleges and other industry players.

The deal doesn’t cover federal loans owed by students who attended DeVry during the period of the suit. Federal student loan borrowers who believe they were wronged by their schools can apply to the Department of Education as a part of a process known as borrower defense to have their loans wiped away. Often lawsuits can serve as evidence of wrongdoing for purposes of federal student loan forgiveness, but because the judgment doesn’t specify any illegal conduct it could make it difficult for borrowers to rely on it to claim loan forgiveness. It also appears that a Donald Trump administration will be friendlier to for-profit colleges, which may mean that borrowers petitioning for forgiveness will have a tougher time. “There are indications from the incoming Trump administration that they will be pretty strict about issuing students relief,” Baylor said. The Department of Education didn’t indicate whether the FTC settlement would help DeVry students with federal loans in their pleas for forgiveness. When the Department announced its own deal with DeVry, the agency said it planned to continue its own investigations into the institution. Any resulting findings could help borrowers in their efforts to pursue forgiveness.

“We are pleased that today’s settlement delivers both financial relief to former students and puts in place protections for current and future DeVry students,” Ted Mitchell, the undersecretary of education, said in a statement.