Brendan Bieri was waiting tables and bar-tending after graduating from Mission Viejo High, while dreaming of a career and a better life.
An admissions counselor at the Art Institute of California offered what seemed a no-lose proposition: if he enrolled to earn a degree in visual game programming , Bieri would learn animation from professionals who had worked for Disney. The program at the Santa Ana campus was so good, the counselor said, that 95 percent of graduates quickly land a job.
Three years later, Bieri graduated with $90,000 in loans and found that few of the recruiter’s predictions came true. He is now helping his dad start an Alaskan company that sells smoked salmon dog treats, while quickly falling behind on his loans.
“He was like a used-car salesman,” Bieri, 31, said of the recruiter. “It was a high-pressure sale. I feel like everything I learned there I could have learned on YouTube.”
Bieri’s story, as well as similar accounts from other former students, are echoed in two pending federal lawsuits against Education Management Corp., the company that owns the 50 Art Institute campuses across the country. The lawsuits, filed by former employees, claim that the company’s recruiters frequently misled potential students because of the financial incentives they received for enrolling them.
Chris Hardman, vice-president of communications for Educational Management Corp., or EDMC, said the company believes the lawsuits have no merit. He added that he could not speak about individual student cases because of privacy laws.
“It’s disappointing anytime we hear about a student that has had a bad experience at any of our schools,” he said. “We want to do everything we can do to help students.”
The students’ stories of their struggle to find jobs with salaries high enough to pay the Art Institute’s $96,000 four-year tuition help explain why for-profit colleges are increasingly being blamed for adding to the nation’s crisis of skyrocketing student debt.
Americans now carry nearly $1.2 trillion in student loans – even more than they owe on credit cards. And while 13 percent of the nation’s college students attend for-profit schools, these students now account for 46 percent of loan defaults, according to an analysis of federal data by the Institute for College Access and Success.
Hardman said that the company has frozen tuition through 2015 for the 70,000 students now enrolled at the Art Institute campuses and is offering $100 million in scholarships this year.
The company points to the success of former students like Brian Rogers, a Navy veteran who enrolled in a digital photography degree at the Santa Ana campus.
Rogers said he did not know how to use a camera on his first day of class, but opened his own portrait studio when he graduated in 2012, which has quickly become a success.
“It literally changed my life,” Rogers said of his experience at the school. “Now I can never picture myself doing anything else.”
Added Hardman, “We truly help build careers. That’s what we focus on.”
Some students bitterly disagree.
“I was trying to improve my future,” said Amy Kaplan, a single mother from Huntington Beach who enrolled in an Art Institute photography program and now owes $34,000 in loans. “Instead this institute destroyed it.”
TAXPAYER-FUNDED REVENUE
Like other career college companies, EDMC receives most of its revenue – 80 percent last year – from taxpayer-financed student grants and loans.
The companies have little incentive to ensure their graduates can pay back the loans; unpaid debt is a loss not to the company but to taxpayers, as well as a personal credit disaster for the student that can haunt them for years.
The career college business has proven so lucrative that in 2006 EDMC was purchased by Goldman Sachs, the Wall Street investment bank, and two other firms. Today, Goldman still owns about half the company’s outstanding shares.
In the last 15 years, EDMC has greatly expanded, opening new campuses and more than tripling its student rolls. Besides the Art Institute, it operates the Argosy University, Brown Mackie College and South University campus chains.
But like some of its competitors, EDMC has attracted scrutiny of federal and state investigators as more students have defaulted on their loans.
In January, EDMC announced that the attorneys general of a dozen states are investigating its practices, including how accurately it reports job placement statistics.
In 2012, an investigation by a United States Senate committee suggested the company was more focused on increasing profits than enrolling students who could benefit from its expensive courses.
The investigators calculated that EDMC had some of the highest student withdrawal rates in the industry. More than 62 percent of students who enrolled in 2008 or 2009, they said, had withdrawn two years later.
The company spent more than $400 million a year on marketing, the investigation found. The money paid for ads on television, radio and the Internet, as well as for the salaries of more than 5,000 recruiters.
Internal documents unearthed in that probe, as well as detailed claims by former employees in the two lawsuits, paint a picture of a company driven to admit as many students as possible, especially those qualifying for the maximum in federal aid.
One of the lawsuits, filed in 2012 by Jason Sobek, a former admissions executive, claims recruiters worked in a “boiler-room atmosphere” where they were paid bonuses and other incentives based on their success in getting people to enroll.
Sobek says EDMC trained recruiters to avoid talking about how much a degree would actually cost. He also claims the company had two sets of job placement statistics – one for the accrediting agency and another with higher percentages that was given to potential students.
His lawsuit says recruiters were taught to use forceful sales closing techniques and had “perfected the art of preying on the hopes and dreams of vulnerable students desperately seeking better lives.”
Hardman said the company disputes the claims. He added that the company has recently strengthened its compliance programs, which are meant to ensure employees follow the law.
AMBITION TO MOVE AHEAD
Kaplan had moved back in with her parents in San Juan Capistrano with her three-year-old son in 2009 when she began looking for a way to move beyond her $9 an hour job at Taco Bell’s corporate offices.
She put in a request for more information about a photography degree on the Art Institute’s website. “They called me within five minutes of hitting ‘submit,’” she recalled.
The recruiter talked about how 80 percent of graduates left the program with a job, she said. The employee had also assured her that, because she was a single mother, federal aid would cover her tuition.
She started classes at the Santa Ana campus, later transferring to the Art Institute in Hollywood.
She started to worry, she said, when an instructor warned that she was wasting her time. To work as a photographer, she needed experience, not a degree, he told her.
She also soon learned that her Art Institute credits would not transfer to California’s community colleges – a downside of many for-profit career schools.
“That’s when I decided to leave,” she said.
She said she was shocked when she later learned she had $34,000 in student loans. “I never got a bill,” she said. “I didn’t think I would have a loan.”
Hardman said the company’s financial aid staff makes sure that students know the cost of tuition and how much they will ultimately pay. “We don’t want students to go into this without knowing what their obligations will be,” he said.
Kaplan now works in a photo-editing job in Venice. She deferred the loans, she said, but payments will soon be required. Even now, she said, she has little money left after paying rent and supporting her son.
“I can’t imagine how I will be able to pay,” she said.
CALLS FROM A LENDER
No more than 90 percent of a for-profit college’s revenue can come from federal student grants and loans – a law that has been a frequent headache for EDMC and other companies.
Internal documents obtained by Senate investigators show that EDMC executives frequently discussed tactics that could be used to stay under the 90 percent limit.
For example, a document from an EDMC Executive Management Team meeting in July 2008 proposes a list of options that include raising tuition by an additional 8 percent beyond an expected hike – a move that would force students to pay more out-of-pocket.
The executives also discussed increasing the number of students with “alternative loans with co-borrowers,” according to the document. Such private loans would help offset taxpayer-funded loans, keeping a campus within the limit.
Bieri’s mother, Lorraine Bieri-Anderson, remembers how halfway through her son’s degree program, the college’s financial aid staff required her to co-sign a $10,000 bank loan to cover part of his tuition.
Anderson said she now questions why the private loan was necessary since her son continued to get federal loans, which carry a lower interest rate and can often be deferred.
She says the bank is now calling her every week as her son struggles to make payments.
Hardman explained that students face annual limits on federal loans and “any option they decide to take is up to them.”
Anderson said she remembers how she had gone with her son on his first visit to the Santa Ana campus. She said she had also been swayed when the recruiter explained how the school would help her son start a career in the video game industry.
“They made all these promises to us and none of them evolved,” she said. “He spent $84,000. All these poor kids have nothing afterwards but mounds of debt.”
Contact the writer: mpetersen@ocregister.com
