For-Profit Education Provider Faces Trouble

Career Education Corporation, a major for-profit post-secondary education provider, is facing trouble after it admitted to supplying misleading information on job placement rates. Other for-profit companies are struggling too, under pressure from new federal rules.

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A major for-profit education company admits its employees may have misled students about their job prospects after graduation. Career Education Corporation says it has found problems with its job-placement numbers, and announced a major management shakeup.

As NPR's Larry Abramson reports, some for-profit education companies are having a hard time surviving in a tighter regulatory environment.

LARRY ABRAMSON, BYLINE: Career Education Corporation has over 100,000 students worldwide, many in its well-known Cordon Bleu culinary schools. The company has been seen as vulnerable as the Department of Education cracks down on for-profit schools, demanding higher graduation rates.

Last week, the company's stock price suddenly plunged after management announced a major shakeup. The CEO was out. Why? Chief Financial Officer Mike Graham says, a company investigation had uncovered problems with the most important statistics for a career school - job placement rates.

MICHAEL GRAHAM: We're obviously very disappointed by these findings, but we took swift and effective action in identifying the conduct and rooting out the problem.

ABRAMSON: The company probed the numbers at 49 of its schools. Turns out, only 13 had actually achieved a key metric. They'd placed 65 percent of their students in jobs related to their field of study. The rest may have used misleading numbers to lure students.

Career Education Corporation must place 65 percent of its graduates in relevant jobs if it wants to hold on to accreditation and access to federal aid money. Tony Bieda is with the Accrediting Council for Independent Colleges and Schools. He says his organization now has to audit the school's numbers to see how far back these problems go.

ANTHONY BIEDA: So our council gets to review what the school is doing, on the ground, to improve the placement rates that have fallen below our compliance thresholds.

ABRAMSON: This news comes as the attorney general of New York has subpoenaed documents from Career Education. The A.G. wants to see whether the company may have violated state laws on consumer protection by possibly publishing misleading statistics.

Job-placement rates are the Achilles' heel of the for-profit industry. Career college students pay high prices for promises of - well, a career. They don't want a framed diploma. Jarrel Price watches the industry for Height Analytics.

JARREL PRICE: Particularly in this economic environment, strong job-placement rate in a desired career is a vital recruiting tactic for the for-profit sector.

ABRAMSON: While Career Education struggles with subpoenas and a review by its accreditor, it also faces the same drops in enrollment that have dragged down the stock prices of many for-profit educators. On average, the company says the number of new enrollments dropped 22 percent over last year. That's similar to news from the Washington Post Company, which just reported more than $6 million in losses in the third quarter, thanks in part to tanking enrollments at its Kaplan Education division.

The odd thing is that some of these declines are almost intentional. Schools are under pressure from regulators to improve outcomes, so many have been tightening standards. The hope is this will improve the prospects for long-term growth.

Jarrel Price says the companies whose enrollment numbers bottom out first may have an advantage - like Apollo Group, which owns industry leader University of Phoenix.

PRICE: Some of their peers, like Apollo, started their transformation earlier and therefore, they're further toward stabilizing their businesses.

ABRAMSON: The Career Education announcements will test the promises of accrediting bodies. In the past, they had been accused of using too gentle a touch and basically, helping errant schools get back on track. And it will test new federal regulations, which require that for-profit schools post reliable information, or get out of the career education business.

Larry Abramson, NPR News, Washington.

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