The largest of the national accreditors is threatening to withdraw its approval of 49 health and art-and-design colleges owned by the Career Education Corporation, less than a month after the company reported problems with the colleges' job-placement rates.
Last Monday the Accrediting Council for Independent Colleges and Schools sent a letter to the corporation ordering it to "show cause" why the colleges should retain their accreditation, the company disclosed in a filing today with the Securities and Exchange Commission.
The accreditor will hear the company's appeal at its annual meeting, in early December.
The Career Education Corporation stumbled on the placement-rate problems at its health and art colleges this fall, while gathering documents to respond to a subpoena from the New York attorney general. It hired a lawyer to investigate placement-rate practices on all of its campuses and reported its discovery to the council.
The investigation confirmed that certain placements "lacked sufficient supporting documentation" or otherwise failed to meet the company's "placement guidelines," according to a company news release. Removing those graduates from the total caused all but 13 of the company's health-education and art-and-design colleges to drop below the 65-percent placement-rate benchmark set by the council.
The investigator is still reviewing placement-rate data at the company's other domestic campuses, including American InterContinental University, Colorado Technical University, and its culinary schools.
In a conference call with investors three weeks ago, Michael J. Graham, the company's chief financial officer and executive vice president, said it had taken action against career-services employees responsible for the "improper actions" and would retrain its remaining employees. He said the company would clarify its criteria for counting placements and would cap enrollments in some programs where jobs were scarce, while closing others.
Although the accreditor's action is serious, it is not necessarily a death sentence for Career Education's health and art-and-design divisions. Accreditors are notoriously slow to act against colleges, and only rarely do they revoke an institution's accreditation. On its Web site the council lists only 11 colleges that have lost accreditation since February 2007, and many of them were closing or switching programs to another accreditor, said Jeffrey M. Silber, an analyst with BMO Capital Markets.
The action against the Career Education Corporation comes as a growing number of for-profit colleges face lawsuits and investigations into their job-placement practices.
The corporation is no stranger to placement-rate controversy. In July 2005 officials at California's Bureau for Private Postsecondary and Vocational Education restricted the operating license of the Brooks Institute of Photography, alleging that the institution deliberately misled its students about their employment prospects by falsifying job-placement data.
The company, which owns the Brooks Institute, appealed the bureau's actions, and an administrative-law judge in Los Angeles proposed to dismiss the bureau's notice of conditional approval after determining that it had not done a thorough on-site review of the institution.
The California Department of Consumer Affairs accepted the decision and allowed the Brooks Institute to continue normal operations.
Last year the company offered to pay $40-million to settle a class-action lawsuit filed in 2007 by students who accused the California Culinary Academy in San Francisco of misleading students about their job prospects. According to the lawsuit, the college reported rates between 75 and 96 percent for its culinary-arts and baking programs, but didn't disclose that a majority of graduates were working not as chefs, as they had been promised, but as prep and line cooks—minimum-wage jobs they could have obtained without a degree.
The settlement, which is awaiting approval by a California judge, would provide rebates of up to $20,000 to 8,500 students who attended the academy, part of the Le Cordon Bleu chain, from 2003 to 2008. It would also forgive $1.8-million of their student debt.
Two other Le Cordon Bleu schools—the California School of Culinary Arts in Pasadena and the Western Culinary Institute in Portland—also face class-action lawsuits from former students who say they were misled about the schools' job-placement rates. A group of former medical-assisting students at Sanford-Brown's campus in Collinsville, Ill., is suing for similar reasons.