Heald College, the jewel of a once-thriving chain of for-profit colleges owned by Corinthian Colleges Inc., misled students and accreditation agencies about graduates’ employment rates and showed a “blatant disregard” for the federal student loan program, the U.S. Department of Education alleged Tuesday.
The Education Department said it had found 947 false job placement rates dating back to at least 2010, and slapped Heald with a $29.7 million fine and a ban on enrolling new students. Heald must prepare plans for its thousands of students -- enrolled in health care, business, technology and legal programs across its online school and 12 campuses in California, Hawaii and Oregon -- to either graduate or transfer to a new school.
The finding, an effective death knell for Heald, bolsters claims by current and former students to get their federal student loans forgiven on the grounds that the false job placement rates led them to enroll. A spate of lawsuits last year by several state attorneys general and the Consumer Financial Protection Bureau alleged that Corinthian’s schools systematically misrepresented their job placement and graduation rates.
“Current and prospective graduates of Heald could reasonably have been expected to rely to their detriment upon the information in Heald's placement rate disclosures,” the Education Department said.
The Education Department's move is perhaps the Obama administration’s toughest action against a large for-profit college alleged to have cheated students.
“Corinthian violated students’ and taxpayers’ trust,” said Education Undersecretary Ted Mitchell. “Their substantial misrepresentations evidence a blatant disregard not just for professional standards, but for students’ futures. This is unacceptable, and we are holding them accountable.”
Education Secretary Arne Duncan added, “This should be a wake-up call for consumers across the country about the abuses that can exist within the for-profit college sector.”
Heald’s owner, Corinthian, secured a federal bailout last year following a deal with the Education Department that called for the company to sell most of its campuses to one of the department’s contracted debt collectors. Education Department suspicions that the company’s colleges reported fake job rates prompted a restriction on its ability to quickly tap federal student aid last summer, which months later led to the forced sale.
Joe Hixson, a spokesman for Corinthian at Abernathy MacGregor Group, vigorously disputed the allegations in a statement. The Education Department relied on “faulty data and analyses discovered and disclosed more than 18 months ago,” Hixson said, leading to “flawed” conclusions.
The announcement, Hixson said, “further threatens Heald’s future by potentially imposing added financial and operational hurdles to prospective buyers ... It would be no less than a travesty of fairness and justice if the department were to rely upon selective, misleading, and highly technical, unsubstantiated allegations to thwart the sale of Heald.”
According to the Education Department, Heald’s inaccurate job placement rates constituted a “substantial misrepresentation,” a finding that allows the department to prohibit the school from accessing federal student aid such as Pell grants and loans that students would use to pay for tuition.
For example, Heald allegedly misled prospective students by advertising false job placement rates that omitted the fact that many of its graduates simply weren’t counted. It also told prospective students that it confirmed graduates’ employment with the graduate or her employer. In reality, the Education Department said, the school in many cases simply relied on its own career services staff for confirmation.
Heald also paid staffing agencies to hire its graduates, the Education Department said, and counted them as officially employed in their field. In one case, the department found a Heald graduate who only was employed for two days moving computers and organizing cables.
A 2011 graduate of an accounting program at the college’s Hawaii campus was counted as being employed in her field even though her job was serving fast food at a Taco Bell.
Heald also counted graduates as employed in their fields when those students began their jobs prior to even enrolling in the school. Of its 2012 graduates, a quarter of them began their jobs before 2011.
In addition, Heald led prospective students to believe that they needed a credential for a job in their chosen field, the Education Department said.
“These highly questionable, unsubstantiated allegations by the U.S. Department of Education regarding Heald College should not be allowed to shift focus away from the central fact that Heald has a well-documented track record of providing quality education and significant value to its students for more than 150 years -- and should be allowed to continue to do so,” Hixson said.
Heald can appeal the Education Department’s fine by May 5.
Last year, after the Education Department restricted Corinthian’s ability to access federal student aid, student advocates criticized the department for not more aggressively investigating Corinthian before it allowed students to receive billions of dollars in taxpayer funds to attend Corinthian’s schools.
The advocates contend that the department effectively turned its back on students armed with worthless credentials that were obtained as a result of Corinthian’s misleading job placement rates.
Over the past few months, a consortium of government authorities, policymakers and student advocates have urged Education Secretary Duncan to take another look.
In December, 13 Senate Democrats demanded that the Education Department forgive debts incurred by Corinthian students, pointing to lawsuits filed by state prosecutors and the federal consumer bureau.
Last month, activists from the Occupy Wall Street movement began collecting debt relief applications from former Corinthian students to file with the Education Department that reference state and federal allegations. They’ve collected more than 650 in the last few weeks, said Luke Herrine, one of the organizers.
More than 100 former Corinthian students are publicly refusing to repay their federal student loans as part of a debt strike to try to force the Education Department to forgive debts incurred by all former Corinthian students. Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, said she supports the debt strikers.
Organizers behind the debt strike criticized the Education Department's fine as inadequate and questioned why the department is allowing the college to continue operating. They also criticized the department's failure to announce debt relief for Heald's current and former student borrowers.
"When the department announces enforcement actions against predatory institutions without explaining the mechanism it plans to use to provide broad relief to borrowers, we question its real motives," the organizers said in a statement. The Education Department has "coddled the embattled corporation with emergency cash inflows and facilitated sales of distressed assets while continuing to collect from defrauded students," the organizers said.
Last week, nine state attorneys general asked Duncan to use his existing authority to cancel debts for students who attended schools currently or formerly owned by Corinthian, pointing to their own investigations documenting false graduation and job placement rates.
“We need uniform accountability, not just selective enforcement,” said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit. “Fining Heald is only the tip of the iceberg. The Education Department needs to do a full review of those it funnels billions to every year in federal student loans to prevent deceptive practices, and cancel the debt of those borrowers that have taken on debt that is illegitimate.”
CORRECTION: A previous version of this story incorrectly stated the Education Department found 946 fake job placement rates. It is 947.
This story has been updated with a comment from the organizers behind the debt strike.