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News Release: 2014-06-17

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S.F. City Attorney Seal 2014 

Herrera reaches $4.4 million agreement in dispute over for-profit college’s marketing

 

California Art Institutes’ ownership to settle for $1.95 million; fund returning student and new student scholarships; and re-calculate graduation and job placement rates

SAN FRANCISCO (June 17, 2014)—City Attorney Dennis Herrera today settled an unlitigated claim against California Art Institutes’ parent company in a consumer protection dispute over marketing tactics that allegedly underestimated program costs for students and inflated job placement figures for graduates.

Under terms of the agreement with Educational Management Corporation, the Pittsburgh-based for-profit educational provider will pay San Francisco $1.95 million to settle the dispute; endow a $1.6 million scholarship fund for non-graduating California Art Institute students who wish to return to finish their studies; and offer $850,000 in general scholarships to new students. The agreement—formally an “Assurance of Voluntary Compliance” that is legally binding and enforceable in court—includes provisions for a sweeping array of reforms to Educational Management Corporation’s marketing and reporting practices. The accord, which avoids litigation, includes no admissions of wrongdoing.

“I hope this agreement is a bellwether for other for-profit colleges, highlighting the need to fully inform students about their education costs and job placement prospects,” said Herrera. “In a workplace where so much depends on education and training, students deserve accurate information about the schools they attend—and that’s exactly what California law requires. I applaud Educational Management Corporation for its industry leadership in working with us cooperatively and productively. They’ve shown a commendable willingness to address concerns about their current and former students, and to avoid similar problems moving forward.”

The $1.6 million Returning Student Scholarship Fund will be distributed to students who withdrew from California Art Institute programs between 2009 and today, and will be available to returning students for five years or until it is exhausted. EDMC and the City Attorney’s Office will work together to publicize the fund to reach out to eligible former students. EDMC has also agreed to new methods of calculating the percentage of enrolling students that graduate with degrees, and the percentages of students that are employed and that are employed within their field of study; and to publicize those recalculated figures in their promotional materials. The school also agreed to train advisors to counsel students on the long term effects of student loan debt and default.

As is common with Assurances of Voluntary Compliance reached outside of litigation, the agreement also includes enforcement provisions that compel EDMC to notify the City Attorney of any breaches of the agreement on its part, and a stipulation that a material violation by EDMC will be considered evidence of an unfair business practice that the City could make the subject of a future lawsuit.

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Last updated: 6/17/2014 12:50:38 PM