FTC threatens hefty penalties against for-profit colleges for false claims, warning 70 schools

Dive Brief:

  • The Federal Trade Commission is targeting false claims made by for-profit colleges by renewing its use of a legal authority that allows it to seek civil penalties against companies that engage in practices they knew were unfair or deceptive.
  • The agency sent notices to the 70 largest for-profit schools in the country under its Penalty Offense Authority, it said Wednesday. Those notices outline practices the FTC has deemed unfair or deceptive, laying the groundwork for violators to have to pay as much as $43,792 per transgression.
  • Additional colleges could receive notices going forward. It’s also possible the FTC could crack down on institutions that haven’t received any notices if the agency can prove they had “actual knowledge” the FTC condemned certain practices, said Samuel Levine, director of the agency’s Bureau of Consumer Protection, during a virtual press conference.

Dive Insight:

The FTC outlined several cases it previously determined are illegal because they are deceptive or unfair. They include misrepresenting “directly or by implication” employment prospects for an institution’s students, graduates’ earning potential, and an institution’s ability to help students find jobs. They also include misrepresenting employment requirements in a field for which an institution trains students.

Officials expect each misrepresentation made to each student to count as a separate violation. The notices recommend colleges take steps needed to make sure their practices don’t violate the law.

The 70 for-profit institutions receiving notices from the FTC have not been found guilty of wrongdoing, but officials struck a stern tone.

“We are sending a decisive message to the industry at large that the conduct described in our notice of penalty offenses is a violation of the FTC Act,” Levine said. “If your school engages in that conduct, we can take action, and we will.”

Generally, only for-profit colleges fall under the FTC’s jurisdiction, but Levine didn’t rule out pursuing companies working with nonprofit institutions.

“Nonprofit institutions shouldn’t feel they are completely insulated because of their tax status, especially if they’re relying on for-profit institutions to make deceptive claims,” Levine said. An FTC spokesperson said in an email the agency will monitor conduct by for-profit advertising and marketing agents.

Leaders at Career Education Colleges and Universities, a trade group representing for-profit institutions, objected to the for-profit sector being singled out.

“Publicly announcing that it is sending warning letters to 70 of the largest for-profit institutions arbitrarily impugns the integrity of institutions that are in full compliance with FTC regulations,” CECU President and CEO Jason Altmire said in a statement.

But advocates for student borrowers cheered the news. Katherine Welbeck, advocacy director at the Student Borrower Protection Center, said in a statement that for-profit institutions disproportionately recruit Black and Latino students, often using illegal or deceptive tactics, leaving them with high debt and posting poor outcomes.

“Today’s news is an important step towards deterring schools who are bad actors and eliminating opportunities for these programs to rip off students and further strip wealth from communities of color,” Welbeck said.

For-profit colleges have also drawn scrutiny for focusing on recruiting veterans, tapping into their GI Bill benefits, and delivering weak graduation and retention outcomes.

Wednesday’s announcement comes after Rohit Chopra, an FTC commissioner, co-authored a 2020 paper arguing the agency needed to “resurrect” the Penalty Offense Authority, calling it “one of the key authorities abandoned in the 1980s.” Chopra was confirmed last week to lead the Consumer Financial Protection Bureau.

The FTC’s new action follows other agencies toughening their enforcement stances on the for-profit college sector and scrutinizing student debt. 

The U.S. Department of Education said in August that two closed for-profit institutions owe more than $6 million. And the Consumer Financial Protection Bureau said last month that income-share agreements are credit, dealing a blow to providers who argue they are unique financial products. In those cases, the regulators issued statements stressing accountability and oversight.