Cover Story: The student trap

Eighteen months ago, Ronnecia Jones sat in the glossy administration building of American InterContinental University’s Buckhead campus. On a big screen in front of a couch in the waiting area, she watched a video of the senior-class fashion show, complete with lean models clad in chic outfits strutting down the runway.</
AIU seemed to be everything she wanted in a college. “I needed to go to a fashion school,” Jones says, “and it looked fairly impressive.”</
Jones, 22 at the time, had always been interested in fashion. She’d already launched her own Southern Girl clothing line. What she didn’t know was how to market her products. AIU offered an associate’s degree program in fashion marketing that she thought could help her reach that goal.</
A recruiter called her into his office and pulled out sheets to show her the cost to attend AIU – about $5,000 per quarter. Then he escorted her up the tree-lined sidewalk to the school’s main building on Peachtree Road near Lenox Square. They rode the elevator to the third and fifth floors to view a few classrooms and to watch fashion students work on their projects. Jones was sold.</
Only two weeks after she toured the campus and called a lender to take out student loans, Jones went to the university’s orientation and began classes. It didn’t take her long, however, to second-guess her decision.</
She says some of her teachers taught by reading aloud from the textbook. They couldn’t answer such basic questions as how to find models for a fashion show or how to plan a public-relations event. And for a final project, she says, every instructor required the same assignment: a report, PowerPoint presentation and poster-board display.</
Although Jones received her degree last month, she wonders whether she needs to go back to a different school to learn the basics of fashion marketing.</
“I taught myself everything I learned,” she says. “I don’t feel satisfied.”</
WHEN ATLANTA ENTREPRENEUR Steve Bostic bought the American College of Applied Arts in 1996, the institution primarily offered courses in fashion and interior design at four locations: Atlanta, Los Angeles, London and, of all places, Dubai. Former students say it was an intimate, creative environment that fostered learning.</
“There were one or two admissions people in a small office and only 15 students in the classroom,” says Carey Hicks, a former fashion student at the college. “It was inviting.”</
Bostic quickly added new educational tracks, increased class sizes and raised tuition. And he adopted a grander name: American InterContinental University. Bostic didn’t respond to Creative Loafing’s inquiries but, according to press reports, his company soon ran into financial problems.</
In 2000, he sold his schools for $81 million to Career Education Corp., a much larger, Illinois-based company. CEC, which was founded in 1994 and went public three years later, was becoming a powerhouse in the rapidly growing field of for-profit colleges. The company quickly accumulated smaller schools. It became the world’s second-largest publicly traded chain of colleges.Shares skyrocketed from around $20 in early 2002 to more than $70 in June 2004. Last year, the company grossed $1.7 billion.</
Today, CEC operates 75 campuses, including seven under the AIU brand, four Le Cordon Bleu College of Culinary Arts branches in North America and 15 known as Sanford-Brown. The company has almost doubled its number of students since 2002, from 50,400 to about 90,000.</
But the stunning expansion has come hand-in-hand with stunning threats to the company’s future. Between 2004 and 2007, CEC was investigated by the U.S. Department of Justice, the U.S. Department of Education and the U.S. Securities and Exchanges Commission. CEC says it’s been cleared in those probes. But, according to a statement the company was required to file with the SEC, it still faces a Justice Department civil review in which the company “may have submitted false claims and statements.”</
The company’s AIU campuses face an even more pressing threat. In December 2005, the Commission on Colleges of the Southern Association of Colleges and Schools placed all AIU campuses on probation for “failure to correct deficiencies of significant non-compliance.” A year later, the commission extended the probation for another 12 months.</
In a scathing report from January 2007, the commission determined, among other things, that AIU still:</
• Had fundamental issues with “integrity in all operations.”</
• Failed to offer degree programs that “embody a coherent course of study and are compatible with the institution’s purpose.”</
• Didn’t have an adequate number of full-time faculty nor qualified administrative and academic officers.</
• Lacked “institutional effectiveness.”</
The accrediting agency is scheduled to complete another review in October. By the end of the year, it either will take the school off probation or revoke AIU’s accreditation.</
In an e-mail response to CL’s questions, AIU CEO George Miller noted that the January report cleared the university of eight of the 15 shortcomings Southern Association of Colleges and Schools cited in its original report. He said the school is working on the remaining seven issues.</
“Significant changes have been instituted,” he wrote, “and we are confident that the changes made will improve the educational experience for all of AIU’s students.”</
LOSING ITS ACCREDITATION would be a catastrophic blow for the university. Commission President Belle Wheelan says SACS immediately notifies the U.S. Department of Education if that happens. At that point, Wheelan says, “the [college’s] students are no longer eligible for federal financial aid.”</
That would threaten the very backbone of CEC. To understand why, you have to understand something about the business structure of for-profit colleges. The Chronicle of Higher Education – a venerable publication of the education establishment – compares for-profit outfits to health clubs. They’re often housed in leased office buildings and woo students through heavy advertising pitches that promise career success. Traditional public and nonprofit institutions spend about 2 percent of their revenues on recruiting; for-profits spend a whopping 23 percent.</
The schools differ just as much when it comes to where they get their money. Traditional colleges receive large chunks of government funding, research grants, and corporate and alumni donations. But for-profits, like chain gyms, succeed by generating numbers. So virtually every penny – from their operating budgets to how much profit they turn – comes from what students pay to go to school.</
“With tuition as their lifeline they certainly need to make sure they have all seats full in order to cover their expenses,” says Bryan Cook of the American Council on Education.</
In addition, notes CEC spokeswoman Lynne Baker, “for-profit post-secondary schools serve a higher percentage of lower-income and minority students who have had less access to traditional institutions of higher education and less access to personal or parental funding for their education.” So a lot of students at for-profit schools end up funding their education with federal loans.</
According to CEC’s filings with the SEC, federal student loans and grants account for almost 60 percent of the corporation’s revenue. Contrast that with public and nonprofit four-year institutions, which get only 10 percent to 15 percent of their revenue from federal loan sources, according to Melanie Corrigan at the American Council on Education.</
AIU wouldn’t be the only loser if its accreditation were pulled. The students, many of whom are on the hook for thousands of dollars in loans, face their own risks. Those who want to complete their degrees could have a difficult time transferring their credits from AIU to another school. And independent of the accreditation issue, many students at AIU Buckhead are worried about the quality of education they’re receiving.</
“I’m so mad at this school,” says DeRon Miller, a fashion design and marketing major who is president of the Student Government Association. “I feel like I’m not prepared to go to work for a fashion house. I would know the terminology, but I don’t think I’d be prepared.”</
The student association president’s advice to prospective students: “They should turn the other way and run.”</
IT HASN’T HELPED Career Education Corp. that AIU and some of the company’s other schools have attracted unfavorable media attention over the past few years. In a 2005 report, an undercover producer sent by CBS’ “60 Minutes” told a recruiter at the Sanford-Brown Institute campus in New York City that she was interested in becoming a medical assistant. Even though she confided that she had a fear of blood and a history of drug use, the recruiter signed her up.</
A year later, The Chronicle of Higher Education reported that the AIU campus in Los Angeles misled prospective students about the college’s programs and classes, regularly admitted students who hadn’t graduated from high school, and improperly counted in its enrollment numbers students who never showed up for class. (CEC’s Baker wrote in an e-mail to CL that the issues in Los Angeles “have been addressed and most have long been resolved.”)</
And just last month SF Weekly, an alternative newspaper in San Francisco, reported that recruiters at the CEC-owned California Culinary Academy oversold its programs by using high-pressure sales tactics and the paper quoted students complaining about the quality of their education.</
Most of the 18 current and former students, instructors and staff members interviewed by CL had similar complaints about AIU Buckhead. (Two current faculty members, as well as a student provided by the company, praised the school.) The former faculty and staff members would speak only on the condition of anonymity. One said he had to sign a nondisclosure statement as a term of receiving a severance package. Four others said they still worked in the for-profit college industry and feared losing their current jobs if they spoke on the record.</
“There are good students and good faculty there,” says a former instructor who recently left the school. “They have everything in place, but the greed is what ruins it.”</
Former employees said recruiters had quotas for signing up new students, and that the school’s 90 percent acceptance rate meant almost anyone could enroll. Students and former students said they were unhappy with the gap between the education they were pitched by recruiters and the education they actually received.</
Sypher Tyler, a former student at AIU, says she became interested in the school in 2004 because her mother was a student in the interior design program. Even though she scored a 25 on her ACT (the average score is a 21) and earned good grades in high school, a recruiter told her the competition for admittance into the university’s media-production program would be tough.</
Tyler says she soon realized the academic standards weren’t as rigorous as she’d been led to believe. “They said they were very selective as far as the students they would let into the school,” Tyler says. “But that was inaccurate. There were kids there who didn’t even know what a syllable was.”</
The former staff members said that when it came to reeling in prospective students, the name of the game at AIU was pushing volume. One former faculty adviser says the pressure to produce numbers was intense. After all, volume equals profit, and profit makes investors happy. “My job was to ‘close’ you, to get you to say ‘yes,’” says a former recruiter. “It was a sale.”</
The recruiter says she was expected to enroll 10 to 18 students each quarter and to convince prospective students to hand over the $50 application fee the day they visited campus. “It was a constant hustle to sell people,” she says. “We painted the picture that there was a committee of people who had to review your application and interview you. But it wasn’t like that.”</
AIU CEO Miller responded to CL’s questions by noting that former employees raised the concerns anonymously. “Thus we are unable to assist you in checking the credibility of your sources,” Miller wrote. “... It is impossible to provide specific responses to vague and ambitious allegations.”</
Miller did tell CL that AIU doesn’t require high school transcripts for students to start classes. “Any student who does not provide documentation of high school graduation or its equivalency by the last day of the first term of study is subject to dismissal,” he said, “... and any and all loan funds dispersed to the university on that student’s behalf are promptly returned to the lender. AIU strictly enforces this policy.”</
Former faculty and staff members didn’t just complain about recruitment techniques but also the caliber of the recruits. “They don’t want to call it ‘open enrollment’ but that’s basically what it is,” the former adviser says. “Anyone can come to school there.”</
A recruiter, who says she was fired in 2006 for not making her enrollment quotas, says she was once asked by a colleague to close the deal on a young man who wanted to go into sports management. “We didn’t even have sports management,” she says. “But [the recruiter] was willing to enroll him at a campus that couldn’t give him what he was looking for.”</
THE U.S. SECURITIES and Exchange Commission requires publicly held companies to disclose information about lawsuits and other matters that might affect their financial future, and in recent years, CEC has had its share of disclosures.</
This May, the company reported that it faces six lawsuits filed by former students across the country. Although none of the suits cited appear to involve AIU Buckhead, the allegations have a familiar ring: that the company intentionally and negligently misrepresented the school’s programs, engaged in misleading advertising, and skewed the institution’s enrollment and application processes.</
In the same SEC filing, the company updated an earlier report that stockholders had filed six class-action lawsuits against the company. The lawsuits, which were consolidated into one large complaint in the U.S. District Court of Northern Illinois, allege that the company “made certain material misrepresentations and failed to disclose certain material facts about the condition of our business and prospects ... causing [plaintiffs] to purchase shares of our common stock at artificially inflated prices.” In March, a judge dismissed the case, but the investors filed an appeal a month later.</
“Any organization with 75 schools is likely to have issues that come up, some with merit and some without,” says the CEC’s Lynne Baker. “The resolution of regulatory and legal issues over the past 12 months is evidence that we are continually – and successfully – striving to better our compliance and admissions processes, as well as our academic programs.”</
Company officials acknowledge, however, that all the controversy has taken its toll.</
“Declines in student starts, student population and revenue ... have been influenced by ... the continued probation status of our AIU schools, general competitive pressures for student leads and enrollments [and] the continued negative impact of legal and regulatory matters,” the corporation told the SEC.</
After the SEC notified the company that it was conducting a formal investigation in June 2004, CEC’s share price plummeted from around $70 to less than $30. (It closed last Friday at $33.78.) Between 2005 and 2006, the company’s profit margin dropped from 21 percent to 9 percent. According to one SEC filing, new enrollments for the first quarter of 2007 in CEC’s “university segment” – the branch of which AIU is a part – were down 15 percent from the first quarter of 2006. And the company attributed a 26 percent drop in revenue among its universities – from $243 million in the first quarter of 2006 to $180 million this year – to fewer students.</
In the wake of declining revenue and accreditation issues, CEC’s founder John Larson unexpectedly stepped down as CEO last September. Six months later, the company hired Gary McCullough as the new president and CEO. Baker wrote in an e-mail that McCullough – who’s served in management at the company that makes Wrigley’s chewing gum and the corporation that produces the adult drink Ensure – has a “successful history of growing brands and business lines profitably” and is “very familiar with operating businesses in regulated areas.” She said McCullough, who wasn’t available for comment, “is focused on ensuring that CEC has the best organizational structure and processes in place for its operations.”</
Among his immediate challenges will be to oversee AIU’s battle to keep its accreditation. Losing it would be a severe blow to any institution. Marietta’s Life University, the largest chiropractic college in the country, almost had to close its doors when it lost its accreditation in 2002. Life sued the accrediting agency and was placed back on probation. The university then fixed its problems and eventually regained its accreditation – but is now a much smaller school.</
George Miller, the CEO of AIU, is optimistic that the school will be in compliance with accreditation standards when it’s reviewed again in October. “We have no reason to expect anything other than a favorable conclusion to the probation issue, although nothing is insured [sic],” he wrote in his e-mail response to CL’s questions.</
Miller added that his colleges are braced for the worst. “While the institution’s main goal and focus is to be removed from probation, the institution is looking at contingency plans.” He didn’t specify what those plans entail.</
MANY EMPLOYEES and students are pulling for the school. On AIU’s Buckhead campus, Bhavya Mathur, a biology instructor, says the school is working hard to prepare for the accreditation review in October. “They’re keeping us all in the loop,” she says. “I feel very strongly that we’ll definitely come out from this probation.”</
And Chuck Lawson, who teaches art history, says remaining on probation for an extra year didn’t hurt the school. Instead, he says it helped AIU change problems with the admissions process and with the marketing of the university.</
“It’s like, we don’t want you to make any fake changes and as soon as SACS looks away, then you change everything back,” he says. “They’re taking a whole different approach to things now.”</
CEC’s Baker provided a June 2006 graduate who attributes his current position as an assistant manager at Armani Exchange to his AIU education. In a conference call arranged by CEC, Kenneth Merriman said, “The greatest thing about the school is the faculty. They were completely dedicated and gave heart, mind and soul.” An assistant dean even helped him land a job two weeks after he graduated.</
Although his fashion marketing major underwent a curriculum change in the middle of his studies, Merriman said he understood that “with any institution there’s always going to be some complications.”</
The opinions of other students contacted independently by CL ranged from indifferent to irate. Scott Kollarik is a 2001 graduate who works as a business programmer for a consulting firm in metro Atlanta. He says the majority of his learning didn’t occur at AIU, but at his full-time job for a small startup firm where he worked while he was in school. Now he slowly chips away at his student loans, which total $350 each month.</
“The payment period ends sometime when I’m 60. By that point I will have paid about $89,000,” Kollarik says. “I’m going to end up paying way more money than the whole experience was worth.”</
DeRon Miller, the student body president, says he enrolled in AIU with the hope of designing for fashion powerhouses such as BCBG and Alexander McQueen. He thought the location of the school and its programs would put him a step ahead in the industry. Now he can’t wait to graduate.</
“I don’t even want to walk across the stage,” he says. “I just want to get my diploma and go.”</
And Sypher Tyler, the former AIU student, says she took out about $40,000 in loans to pay for her education. But she became fed up after two years there.</
Tyler says the classes didn’t challenge her, and that the dean of the media-production program wouldn’t take time to meet with her about internships despite her repeated requests. After her mother transferred to the Art Institute of Atlanta, Tyler followed her there in February 2006. She thought her AIU troubles were behind her, until she learned that the Art Institute wouldn’t accept 32 – about a year’s worth – of her AIU credits: “They said, ‘As far as we know, AIU didn’t prepare you for our classes.’”</
Now she won’t graduate until 2009 – five years after she started her college career.</
“I didn’t learn what I really needed to learn there,” Tyler says. “A lot of people who graduate from there feel like they have a fake diploma. I’m just glad I got out.”