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The following is an article from the January 13, 2006 issue of The Chronicle of
Higher Education that Steve Bostic provided to certain stockholders of Career
Education Corporation on May 2, 2006:
THE CHRONICLE OF HIGHER EDUCATION
Government & Politics
From the issue dated January 13, 2006
Promises and Profits
A for-profit college is under investigation for pumping up enrollment while
skimping on education
By STEPHEN BURD
Los Angeles
Time was running out. It was just days before the 2004 spring quarter was to
start, and administrators at American InterContinental University's campus here
were struggling to meet the enrollment targets set for them by the for-profit
college's corporate parent.
The goal was to have more than 350 new "starts" for the term. That meant that
the college's recruiters needed to sign up that many students, put together
financial-aid packages for them, and make sure they remained enrolled for at
least five straight weekdays.
That objective remained elusive, however, and desperate times called for
desperate measures. So Steven E. Tartaglini, the college's president, made a
plea to the institution's full-time faculty and staff members. If they pitched
in and helped the institution achieve 351 starts, then "the Complete Campus goes
to Disneyland for the entire day on a Friday in May as my guests!" he wrote in
an e-mail message that March. "You will even get paid as if it was a normal
workday -- all while you're having fun!"
Noting that "Starts are EVERYONE's responsibility," he pressed the professors to
contact former students with whom they had formed "a good bond" and encourage
them to return to AIU to pursue graduate degrees.
And he had another suggestion: Employees could do their "fair share" by signing
themselves up as students. "Have YOU thought about going back to school to get
that Bachelor or Master's Degree?" he asked. "How about a Master's of Education
Degree? If you are serious about continuing your education and if you start in
April, YOU could be considered a Start that meets the criteria of this
Challenge."
Although Mr. Tartaglini's gambit failed, few of the college's longtime faculty
members were surprised by the request. Ever since the Career Education
Corporation, the country's second-largest chain of for-profit colleges,
purchased AIU's seven U.S. and foreign campuses in late 2000, the institution
had become increasingly focused on trying to bring in more and more students.
William J. Lynch says that when the corporation took over "it became all about
making money."
"It was no longer, Are the students getting the education they need to progress
in their future careers and lives?" says Mr. Lynch, who worked at the Los
Angeles university as a professor and academic administrator for more than a
decade before Career Education purchased it, and then served for a year,
starting in September 2001, as its vice president for academic affairs. "It was,
How many students have we brought in today?"
Just how officials at the university here, and those at many of Career
Education's other 85 campuses, have tried to pump up their enrollment numbers
has become a topic of great interest to federal and state officials, who have
begun to examine proprietary colleges' business practices.
The U.S. Justice Department and the Securities and Exchange Commission are
investigating Career Education, based in Hoffman Estates, Ill., as are state
officials in California, New Jersey, and Pennsylvania. Meanwhile, the U.S.
Education Department has put a freeze on approving any new applications for
campuses or acquisitions by Career Education while department investigators
examine the company's financial records and compliance with federal
financial-aid regulations.
The company -- like several other for-profit higher-education corporations, such
as the Apollo Group and Corinthian Colleges -- is also facing class-action
lawsuits by former employees, shareholders, or students.
Such allegations have shaken up the for-profit higher-education industry, a
once-sleepy sector best known for mom-and-pop trade schools that has been
transformed over the last decade into an extremely lucrative business dominated
by large, publicly traded corporations.
With for-profit colleges representing the fastest-growing sector in higher
education, investors flocked to education-industry stocks, causing share prices
to soar. The eight largest corporations have a combined market value of about
$26-billion. Meanwhile, the companies have become a politically potent force on
Capitol Hill, where Republican Congressional leaders have been pushing to loosen
government regulations on proprietary colleges.
But critics say officials at some of the companies have engaged in aggressive
and misleading recruiting and admissions tactics to inflate their enrollment
numbers. The goals: to obtain student financial-aid money from the federal
government, and to win favor with investors in order to drive up stock prices.
Shareholders who filed a class-action lawsuit in 2003 against Career Education
in federal court in Chicago accuse the company's leaders of engaging in
securities fraud.
The complaint notes that the corporation's two top executives -- John M. Larson,
the president and chief executive officer, and Patrick K. Pesch, the chief
financial officer -- have reaped great benefits from sales of the company's
stock. The two have cashed in about $43-million worth of stock since April 2003,
according to the company's SEC filings. The complaint also notes that before
founding Career Education, Mr. Larson served as a senior vice president for
Phillips Colleges Inc., a chain of trade schools that was, in effect, shut down
by the Education Department in the 1990s amid allegations that it had defrauded
the federal government and consumers.
Career Education is fighting the lawsuit vigorously, saying in its response that
the shareholders' case rests on "speculation, unfounded opinions, and rumors
offered by a handful of former CEC employees."
The company also cites the findings of an independent committee it hired to
investigate the allegations. According to a statement the company issued in May,
that panel found no evidence that senior managers were involved in securities
violations, although it did find that individual employees had engaged in
"wrongful conduct." Career Education did not reveal the identities of those
employees, nor has it released the panel's report.
Nonetheless, the company does appear to be taking the charges seriously and has
been cleaning house at some of its institutions, including the Los Angeles
campus of AIU, from which Mr. Tartaglini departed in November.
Over the last year, the company has also strengthened "the standards and
procedures" that each of its campuses must follow in its admissions and
recruiting policies, asserts Lynne Baker, a spokeswoman for the corporation, to
deal with concerns that have been raised and to prevent any future abuses.
"In those rare and isolated cases where possible violations of policies and
procedures have been brought to our attention, we have moved quickly," says Ms.
Baker, "to make any necessary changes to prevent potential reoccurrence and to
ensure that our students are always treated fairly and appropriately."
Regardless of whether Career Education engaged in any wrongdoing, the questions
about admissions practices at that company and others highlight what may be a
systemic problem in publicly traded for-profit higher education. To keep their
stock prices up and investors happy, the companies must constantly show that
they are expanding, even if doing so is not good for the colleges or their
students.
"There's no question that Wall Street likes growth, and that growth may not
necessarily be in the best interests of highly regulated industries" like higher
education, says Jeffrey M. Silber, an analyst with the Harris Nesbitt investment
bank.
David Hawkins, director of public policy at the National Association for College
Admission Counseling, is more blunt. "The pressure to enroll that Wall Street
places on these companies is almost unbearable and creates incentives to
misbehave," he says. "Unfortunately, we're seeing plenty of evidence that the
`recruit at any cost' mentality is becoming more the rule than the exception."
False Starts
To examine the allegations against Career Education, The Chronicle undertook a
three-month investigation into the recruiting practices at the Los Angeles
branch of American InterContinental, poring through hundreds of pages of court
documents and internal memoranda and interviewing some three dozen current and
former students, faculty members, and administrators. Many of those people asked
to remain anonymous for fear of retribution from the company, which has
attempted to take legal action against some of its critics.
The sources painted a picture of a college devoted to enrolling students by any
means necessary, but that did little for them once they were enrolled and their
financial aid was collected. As a result, the sources said, hundreds of
dissatisfied students dropped out each year, heavily in debt with student loans,
but without the skills they needed to pursue careers in the fields in which they
sought training.
Even many of those who have graduated are unhappy. Despite the promises made in
its advertisements, Career Education Corporation offered them little help in
finding jobs, these individuals complain, and they have found it difficult to
transfer their credits to other colleges.
Career Education has not been charged with any crimes, and company officials
deny any wrongdoing.
The Chronicle has talked to credible sources and reviewed documents that
strongly suggest that, over the last several years, administrators at the campus
here have:
o Regularly admitted students who had not graduated from high school or
earned a General Educational Development certificate, and directed many of
those students to unaccredited high schools where they could obtain
high-school diplomas the very same day.
o Improperly counted as "starts" students who never showed up for class or
dropped out before they had completed their first week of courses.
o Encouraged admissions officers to sign up themselves, as well as family
members and friends, and counted them as "starts" even if they never
actually attended.
o Routinely misled prospective students about the college's classes and
programs, as well as about the nature of the institution itself.
The problems identified by The Chronicle do not appear to be isolated to the one
campus. Many of the findings echo claims made in the shareholders' class-action
lawsuit, which is based on information from interviews with former Career
Education administrators from 26 campuses across the country. That case has not
yet gone to trial.
Stressful Times
AIU's campus here is reeling.
In November, Mr. Tartaglini was gone, with little explanation to faculty and
staff members. Ms. Baker, of Career Education, says he left "to pursue other
opportunities." But some faculty members and an administrator say company
officials escorted him out of the building. Mr. Tartaglini, through his wife,
declined comment.
A month later, the Southern Association of Colleges and Schools placed AIU on
probation, putting the seven campuses and its online division at risk of losing
their accreditation, and with it the eligibility of their students to continue
receiving federal aid. The agency cited Career Education for 15 violations,
including ones related to the accuracy and integrity of the colleges' admissions
and recruiting practices.
The possibility that the college could lose its accreditation has put many
students on edge. "It's extremely stressful worrying about how this will affect
the value of the degree we've earned, especially after all of our hard work and
the money that we've spent," says Antonia Cota, a senior.
Desirae Lantry, also in her senior year, says the college's leaders have only
themselves to blame for the mess it's in.
Ms. Cota and Ms. Lantry, both evening students in the visual-communication
program, say they have had to battle administrators each quarter to force the
institution to offer the courses they need to graduate. Classes are often
canceled at the last minute, they say, and they are forced to take classes out
of order, enrolling in more advanced ones before being able to take the
prerequisites.
"When a school becomes more focused on its money intake rather than the quality
and care of its product, there are bound to be consequences," Ms. Lantry says.
It was not always like this.
Long before there was an American InterContinental University or a Career
Education Corporation, there was the American College of the Applied Arts, a
small, family-owned for-profit-college chain started around 1970, with campuses
in Atlanta, Los Angeles, London, and Dubai. The college offered bachelor's
degrees in fashion, interior design, and international business.
The Los Angeles campus, located down the block from the University of California
at Los Angeles, catered largely to foreign students interested in careers in
those fields.
Professors who taught at the college describe it as having had a freewheeling,
creative environment, with strong connections to the Hollywood entertainment and
fashion industries. Many of the college's graduates were able to take advantage
of those connections to find rewarding jobs, they say.
But in the mid-1990s, the nature of the college changed significantly when the
family sold the campuses to Steve Bostic, owner of a corporate-training firm
called EduTrek International, for $40-million.
Mr. Bostic, who had made his mark by building a chain of photo-processing shops
that he sold to Eastman Kodak, wanted to shift the colleges' focus to programs
that would lead to technology-oriented business degrees for undergraduate and
graduate students.
To achieve that, he planned to transform the institutions into "power campuses"
with state-of-the-art technology, where students would be trained in fast-paced
programs taught in corporate settings.
Under the new leadership, the colleges were renamed American InterContinental
University, and the Los Angeles campus was moved into a fully wired office
building off a major thoroughfare near Santa Monica.
In marketing the programs, Mr. Bostic focused on college graduates seeking
careers in high-growth fields. The university was somewhat selective.
Prospective students would have to take an admissions test and be interviewed to
determine whether they were likely to succeed in the programs before they could
be admitted.
EduTrek went public in 1997 and began an ambitious plan to expand, but ran into
financial problems. In late 2000, Mr. Bostic sold the company to Career
Education Corporation in a deal worth $81-million, including $37-million in
debts and liabilities that Career Education assumed.
Mr. Bostic has come to regret his decision. "I wish I could redo it," he said in
an interview.
The owner of just 1 percent of Career Education's stock, he has been leading a
revolt among the shareholders. Last month he called for the immediate
resignation of the company's top executives.
"We see that directors and management have shown a total inability to handle the
important issues facing the company and preserve the level of quality that is so
important to its core businesses," he wrote in a letter to Mr. Larson, the CEO.
In a statement, the company's leaders rejected Mr. Bostic's demands, saying that
it was "in the best interest of our shareholders, faculty, staff, and students
to maintain management stability."
Bringing in Students
Many current and former faculty members and administrators at the Los Angeles
campus are rooting for Mr. Bostic. They acknowledge the irony in this, as some
of them had bristled at the changes their former boss made at the university.
They particularly objected to the corporate tone he set.
But they say that once Career Education took over, they came to appreciate Mr.
Bostic's leadership.
"There was an overall feeling that he cared deeply about education and the
well-being of our students," says R. Thomas Schorer, a longtime professor of
visual communication at AIU whose contract was not renewed this fall.
"That was a feeling that didn't seem to be shared by CEC."
After the acquisition, it didn't take long to see that the primary motivation of
the new corporate bosses was to drive up enrollment. When Mr. Tartaglini arrived
on campus in 2001, current and former administrators say, he told them he
planned to triple the number of students, to 5,000.
To accomplish that feat, he increased the number of recruiters from
approximately 10 under Mr. Bostic to about 40, almost double the size of the
full-time faculty.
And Mr. Tartaglini made the university an open-enrollment institution, where
just about anybody who applied would be admitted. University officials said that
by making the institution less selective, they were providing opportunities to
the low-income and minority students who had long been ignored by traditional
higher education.
But some current and former professors and administrators say the college wasn't
doing anyone any favors by enrolling large numbers of students who were clearly
not qualified for the high-priced programs they were entering.
"If you can breathe and walk, you can get into the school," says a professor who
wished to remain anonymous.
Not only is the college not helping those students, it is encouraging them to
take out sizable student loans, current and former faculty members and
administrators say.
The annual tuition at the Los Angeles campus is $23,000. According to data that
the university reports to the U.S. Education Department, 84 percent of students
at the campus take out federal student loans. Recruiters at the college also
encourage students of limited means to take out private loans from Sallie Mae,
the country's largest student-loan provider. For students here, interest rates
on these loans range from about 9 percent to 17 percent, as opposed to federal
loans, on which borrowers currently pay a rate of 5.3 percent.
According to its filings with the SEC, Career Education derived 83 percent of
its revenue from federal student aid and private student loans in 2004. That is
more than double the percent of revenue that the average private, nonprofit
college obtains from those sources, according to the American Council on
Education.
Many students who sign up for loans have no idea what they are getting
themselves into, says Mr. Schorer, who is now teaching advanced graphic design
at the University of Southern California.
For that reason, at the beginning of each term at AIU, Mr. Schorer made it a
point to talk to his students about their loans. "I would tell them, `Suppose
you owe $50,000. You know, don't you, that the interest is going to compound on
that?'" he says. "And they would look at me in astonishment. And I would say,
`Isn't anybody telling you this?'"
The stakes are extremely high for students at American InterContinental because
many of them drop out, and Congress has made it nearly impossible for students
to rid themselves of federal or private student loans through bankruptcy.
It is difficult to know the proportion of students who drop out of the Los
Angeles campus each year. In data it provides to the Education Department,
Career Education reports that 67 percent of first-time, full-time students
graduate within six years.
But three current and former administrators say they believe that percentage to
be much smaller.
The plaintiffs in a student class-action lawsuit against the campus here --
which is pending in the state court in Los Angeles -- claim that the
institution's "true graduation rate" is closer to 28 percent. It is impossible
to verify that number, however, as lawyers for the plaintiffs would not explain
how they determined it.
Proof of Graduation
In December 2003, Christopher Grayson and six close friends visited the campus
here to learn more about a media-production program the college was introducing.
The friends were attracted to the university by promises that the training would
lead to lucrative jobs in the music industry.
It didn't take much to persuade them to enroll. But Mr. Grayson was nervous.
Unlike the others, he hadn't graduated from high school, and he wasn't sure
whether that would disqualify him from enrolling and applying for financial aid.
Federal law requires that students have a high-school diploma or its equivalent,
or pass a federally approved test showing that they have an "ability to benefit"
from a college education before being eligible to obtain federal grants or
loans.
Mr. Grayson need not have worried. "I told them upfront," he says. "And they
said, `Don't worry about it.'" A recruiter signed him up and had him apply for
federal student loans, without asking him to take the ability-to-benefit exam.
(After Mr. Grayson later got into a screaming match with a college counselor who
accused him of drinking, he learned that he was no longer enrolled. He was told
he should never have been admitted because he had not graduated from high
school.)
Mr. Grayson was hardly alone. According to internal records compiled by the
registrar's office, which were obtained by The Chronicle, of the 260 students
who were counted as "starts" and receiving financial aid for the quarter
beginning in January 2004, more than 100 had not provided proof of graduation as
of January 16 of that year.
The former admissions officers interviewed for this article confirmed that
students who lacked the proper credentials were routinely enrolled and
encouraged to apply for federal financial aid.
"If a student didn't have a high-school diploma, we would accept the application
anyway," says a former recruiter who recently left the college after working
there for two years. "We would enroll them and indicate that they had graduated
on their applications."
Not only is that practice illegal, but it appears to have been in violation of
Career Education policy, which at the time, prohibited students who lacked a
high-school diploma or its equivalent from starting classes unless they had
taken the GED and were awaiting their results.
Students had 30 days to pass the test or be kicked out and considered "a
negative start," according to a memorandum on the company's admissions policies
that was distributed to campuses in March 2003.
To avoid that problem, the admissions officers said they would often instruct
students without a diploma to go to one of several unaccredited high schools in
the area where they could "purchase" a diploma for about $100 to $200.
One such school was Victory High School, whose Web site promises students the
ability to get "an immediate high-school diploma." The school, which doesn't
offer any classes but only testing, advertises its services to trade schools,
vocational schools, and colleges, saying that the testing it provides gives them
"more control" of their applicants and allows them to "qualify more applicants
for funding."
The Los Angeles public-school district doesn't recognize Victory High School.
According to Stephanie Brady, a district spokeswoman, a credential offered by
Victory "does not meet the standard of equivalency to a recognized high-school
diploma."
Of Victory and the other unaccredited high schools where AIU students were being
sent, Ms. Brady says, "The district has had problems in the past with these
institutions and their practices."
Philip Cripps, owner of Victory High School, defends the institution, saying
that it has been unfairly maligned by the school district, and noting that it is
a member of the Better Business Bureau. "We do real testing," Mr.
Scripps says. "We don't just sell diplomas."
As part of its investigation into Career Education, the SEC has requested
information from the company "about the documentation collected to verify that
enrolled students at certain of our schools are high-school graduates or possess
the recognized equivalents," the corporation reported in one of its latest SEC
filings.
With Career Education ramping up its compliance efforts in response to the
investigations and lawsuits, Mr. Tartaglini in February sent an e-mail message
to the staff reminding them that students were not allowed to start classes
unless they had obtained a high-school diploma or its equivalent.
In that notice, he also announced that the college would no longer accept
diplomas from Victory High School or other similar institutions.
No Shows
Jacqueline Diep never attended any classes at AIU.
She says she enrolled in the fashion program but had second thoughts because the
admissions officer with whom she had been in contact had been too aggressive.
Nonetheless, the college counted her as an official "start" for the January 2004
term.
Career Education's policy at the time clearly stated that students were not to
be counted unless they attended classes during the first week of the quarter.
(The college has since changed that policy to count only those students who
attend classes during the first two weeks of the quarter.) At AIU, students tend
to take two or three courses a quarter, which lasts 10 weeks. Some of the more
advanced courses include an online component.
In a January 22, 2004, document titled "January Start," which was compiled by
campus administrators and obtained by The Chronicle, at least 15 students were
counted as starts even though they had informed the college of their intention
to drop out before the end of the first week of classes. Another 58 students
were included on the list even though they had not shown up for any of their
classes that week.
Current and former faculty members and administrators say they often found a
mismatch between official attendance records and reality.
Mr. Lynch, the former vice president for academic affairs, says he was regularly
"barraged" by faculty members who told him that many fewer students had shown up
for class than the college was counting as having been in attendance.
"They would report it to me, and I would go to admissions and say, `the
following students weren't in class,' and they'd nod and say they would look
into it," he says. "But I'd never hear back from them."
A professor who continues to teach at the college says that it was always
mystifying "how they would keep people on the roster who had never shown up" for
classes.
"I'd mark them absent, absent, absent," the professor says. "And they would
still be on my roster."
`An Open Secret'
Students weren't the only ones who were counted as "starts" even though they had
never shown up for class.
According to a former dean, who wished to remain anonymous, admissions officers
were routinely encouraged to sign themselves up and "to register everyone they
knew -- girlfriends, boyfriends, brothers, sisters, cousins. And we noticed that
after a week or so, most of these people had disappeared."
In January 2004, according to the records the college compiled on "starts," at
least four admissions officers enrolled. The college would pay for 90 percent of
the tuition and fees, requiring the staff members to take out small student
loans.
According to the recruiter who left the college in 2003, "some employees would
sign themselves up to meet their targets."
A former admissions officer who worked at AIU more recently says it was "an open
secret" that all admissions officers would have to do is log themselves in for a
class to be counted as a "start." The recruiters wouldn't have to attend any
classes, and they would drop the class at the end of the first week.
She says she did just that when she found herself in jeopardy of not meeting her
quota of signing up 32 students for the impending term. She also signed up some
relatives.
"We did it so it would count towards our numbers," she said. "Because our jobs
were on the line."
`Stop Lying'
It didn't take Ayarpi Azaryan long to figure out that some of her classmates at
AIU did not belong.
Ms. Azaryan said that the admissions officer who interviewed her led her to
believe that the college was selective. For example, the counselor questioned
her closely about her decision to drop out of California State University at
Northridge. She was also peppered with questions about her priorities in life
and her aspirations.
She was told that the admissions officer was one of the toughest at the college,
and that the only students who were admitted were those who appeared to be a
good fit. Ms. Azaryan got nervous when the counselor left the office for what
seemed like a very long time to consult the head of the admissions department
about her application.
So when she found out she had been admitted, she almost jumped out of her seat.
"It was a big relief," she says. "They had made it seem like it was really hard
to get in."
Once her classes started, though, Ms. Azaryan looked around at the other
students, and the quality of their work, and it became clear to her, she says,
"that anyone could go to this school if they could pay for it."
Fed up, Ms. Azaryan left the college after a year, and her parents were out
$22,000.
Former recruiters say it was a common practice for them to mislead prospective
students into thinking that the college was exclusive. Making the students feel
special made the prospect of enrolling more enticing for them, they say.
Current and former students and faculty members say the admissions staff is also
often misleading about the programs and courses offered at the university. While
company policy dictates that prospective students be given a catalog listing the
programs offered, the former recruiters say sometimes they didn't do so.
A recent AIU graduate, who is $50,000 in debt, says she became interested in the
college because she believed she could learn to become a computer animator. A
recruiter assured her that she'd receive the training she would need to attain a
good job in that field.
Once she enrolled, however, she was horrified to learn that the university
offered only one course in computer animation, and it was only 10 weeks long.
"These are complex software programs, and there is little chance to even cover
the basics in 10 weeks," she says.
Recently, according to one professor, another student dropped out because he
learned that the university did not offer a major in photography, as his
admissions officer had led him to believe. That student, the professor says, is
$6,000 in debt and is considering suing the college.
After the student left, he had a friend call the university and ask if the
institution allowed students to major in photography, the professor says. The
friend was told that it did.
"And that was after our chair had been going to meetings with admissions every
week and demanding that they stop lying to the students and telling them that we
have one," the professor says.
The student who just graduated and the one who dropped out are now unemployed
and trying to find work so they can pay off their loans.
The woman who had hoped to become an animator is struggling especially hard; she
has three children to raise on her own. "The whole reason to go back to college
and to finish was to be able to give them the type of life they've never had,"
she says. "But to come out on the other end of this and to find out you still
don't have the skills you need, that really sucks."
`Impossible Expectations'
Career Education officials have signaled that they take the threat of AIU's
losing its accreditation seriously. They have hired more full-time faculty
members and are requiring employees to attend a seminar on ethics.
At the same time, the company has become much more vigilant about barring
students who lack the proper credentials, says Ms. Baker, the spokeswoman, and
has strengthened "internal controls" at campuses to make sure that professors'
attendance records are not tampered with.
Meanwhile, with new leadership at the campus here, operations do appear to be
running more smoothly.
For example, Ms. Lantry and Ms. Cota, the two seniors in the
visual-communication program, were able to get all of the classes they need for
the coming term -- without having to make a fuss.
"We have been assured that the school will take whatever measures it needs to
take in order to get back in good standing," Ms. Lantry says.
Still, she notes, "for me, that means very little as it is sad that we are in
this position at all."
Some current and former faculty members and administrators are skeptical, too.
As long as the company's leaders focus more on its stock prices than on the
quality of education it delivers, students will suffer, they say.
Higher-education leaders say they are particularly concerned because the
problems that have been uncovered at Career Education do not appear to be unique
to the company. In September 2004, the Apollo Group paid the U.S. Education
Department $9.8-million to resolve issues raised in a review, which blasted the
University of Phoenix for fostering a high-pressure sales culture that rewards
recruiters who put the most "asses in classes." That settlement did not include
any admission of wrongdoing, and university officials called the report
misleading.
David W. Breneman, director of the For-Profit Higher Education Research Project
and dean of the Curry School of Education at the University of Virginia, says
the report showed that trying to meet the "impossible expectations" of Wall
Street had harmed even the most established companies.
"If a solid organization like that can be pressed by the market, it's disturbing
to think what these other companies have been doing," says Mr. Breneman, who has
long admired Phoenix for its readiness to accommodate students.
Even some in the for-profit industry are fed up with their colleagues at the
publicly traded corporations.
The alleged scandals have been "a nightmare for the entire sector," says Stephen
J. Jerome, president of Monroe College, a family-owned, for-profit college that
has campuses in the Bronx and New Rochelle, N.Y. "For us who do it well, it's
like they've stuck a knife into us."
Asked if there are dangers inherent in publicly traded for-profit higher
education, he sighs. "Unfortunately," he says, "what we have been witnessing
probably answers the question."
A GLANCE AT CAREER EDUCATION CORPORATION
Career Education Corporation is the second-largest chain of for-profit colleges,
with more than 100,000 students at its 86 campuses in the United States and
abroad and in its online programs. It had revenue of $1.7-billion and net income
of $180-million in 2004.
Fields of study offered: Business, culinary arts, health care, information
technology, and design technologies.
Flagship: American InterContinental University, which serves about 30,000
students on five U.S. campuses, two overseas campuses, and through its
online-only programs. The AIU campuses, as well as the online programs, are
accredited by the Commission on Colleges of the Southern Association of Colleges
and Schools.
Other key colleges it owns: The nine campuses of the Katharine Gibbs School; the
20 of the Sanford-Brown Institutes and Colleges, which trains students for jobs
in health care; and four culinary colleges that operate under the name Le Cordon
Bleu College of Culinary Arts.
American InterContinental University's 5 U.S. Campuses
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Los Angeles, Houston, Buckhead, Ga., Dunwoody, Ga., Weston, Fla.
--------------------------------------------------------------------------------
Los Angeles campus
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Total enrollment: 2,061 Degrees offered: master's, bachelor's,
Undergraduate enrollment: 1,965 and associate
Tuition and fees: $23,000 Undergraduate programs: criminal
Proportion of students receiving: justice, enterprise management, fashion
Federal grants: 50% design and marketing, information
Federal loans: 84% technology, interior design,
Institutional aid: 6% international business, media production,
and visual communication
--------------------------------------------------------------------------------
NOTE: Figures on enrollment, costs, and financial aid are for 2004-5.
SOURCES: U.S. Education Department; Chronicle Reporting
--------------------------------------------------------------------------------
A STOCK THAT HAS BEATEN THE MARKET
Since 2000, the eight largest publicly traded higher-education companies,
represented here in the composite Chronicle For-Profit Higher Education Index
have collectively outperformed the stock market as a whole. During the same
period, a time of high growth for Career Education Corporation, the company's
stock has generally outperformed the Chronicle Index.
For-Profit Higher-Education Index, weekly
December 31, 1999 = 100
[graphic omitted]
1 The Index is a weighted composite of eight companies' total return (change
in stock price as well as dividends) during a specific period. As such, the
Index is affected more heavily by movements of stock prices of the
companies with larger market capitalizations (the stock price multiplied by
the number of outstanding shares) than by those of smaller companies.
2 This measure of stock-market performance is a value-weighted index of total
returns of stocks traded on the New York Stock Exchange, the American Stock
Exchange, and the Nasdaq Stock Market and was developed by the Center for
Research on Security Prices.
FOR-PROFIT HIGHER EDUCATION UNDER SCRUTINY
Legal and regulatory issues and investigations involving four of the industry's
biggest companies:
----------------------------------------------------------------------------------------------------------------------
Career ITT
Apollo Education Corinthian Educational
Group Corporation Colleges Services
----------------------------------------------------------------------------------------------------------------------
Federal X
----------------------------------------------------------------------------------------------------------------------
Department of Education program reviews X
----------------------------------------------------------------------------------------------------------------------
Department of Education's Office of Inspector General X
----------------------------------------------------------------------------------------------------------------------
Department of Justice X
----------------------------------------------------------------------------------------------------------------------
Securities and Exchange Commission X
----------------------------------------------------------------------------------------------------------------------
State agencies
----------------------------------------------------------------------------------------------------------------------
California Attorney General X
----------------------------------------------------------------------------------------------------------------------
California Bureau for Private Postsecondary and Vocational X
Education
----------------------------------------------------------------------------------------------------------------------
Florida Attorney General X
----------------------------------------------------------------------------------------------------------------------
New Jersey Department of Labor and Workforce Development X
----------------------------------------------------------------------------------------------------------------------
New York Department of Education X
----------------------------------------------------------------------------------------------------------------------
Pennsylvania Bureau of Consumer Protection of the Office X
of Attorney General
----------------------------------------------------------------------------------------------------------------------
Accreditation bodies
----------------------------------------------------------------------------------------------------------------------
Accrediting Bureau of Health Education Schools X X
----------------------------------------------------------------------------------------------------------------------
Accrediting Commission of Career Schools and Colleges of X X
Technology
----------------------------------------------------------------------------------------------------------------------
Accrediting Commission for Community and Junior Colleges X
of the Western Association of Schools and Colleges
----------------------------------------------------------------------------------------------------------------------
Middle States Commission on Higher Education X
----------------------------------------------------------------------------------------------------------------------
Southern Association of Colleges and School X
----------------------------------------------------------------------------------------------------------------------
Legal action
----------------------------------------------------------------------------------------------------------------------
Employment-related lawsuits X X
----------------------------------------------------------------------------------------------------------------------
False Claims Act lawsuits X X X
----------------------------------------------------------------------------------------------------------------------
Shareholder lawsuits X X X X
----------------------------------------------------------------------------------------------------------------------
Student class-action lawsuits X X
----------------------------------------------------------------------------------------------------------------------
SOURCES: Harris Nesbitt Investment Bank: Chronicle reporting
http://chronicle.com
Section: Government & Politics
Volume 52, Issue 19, Page A21