DeVry Education Group DV, +0.47% the operator of a chain of for-profit colleges, will forgive $30.35 million in student loans over claims the company misled prospective students about their ability to get jobs after graduation.
The loan forgiveness, which covers all unpaid student loans made through DeVry between Sept. 1, 2008 and Sept. 30, 2015, is part of a larger settlement with the Federal Trade Commission totaling $100 million. The deal doesn’t include any federal student loans made to students who attended the school during the period of the lawsuit.
The deal, which covers tens of thousands of students, according to the FTC, includes a $49.4 million payment to the FTC that the agency will distribute to students harmed by the misleading marketing. DeVry will also forgive $20.25 million owed to the school by students for items like tuition, books and lab fees. The company agreed to provide students with any transcripts or diplomas that were withheld over the unpaid bills.
The loan forgiveness will happen automatically and DeVry will notify the students eligible for relief as well as their credit bureaus. The FTC will begin sending refunds from the $49.4 million pot in 2017 and will identify students who qualify from DeVry’s records and contact them about the refund.
The FTC sued DeVry last year, alleging the company touted a job placement rate of 90% without evidence to back it up. The agency uncovered evidence that DeVry considered a server at the Cheesecake Factory CAKE, +1.00% and a sales associate at Macy’s M, -6.65% who had degrees in technical management to be working in their field of study.
As part of the deal, DeVry agreed that any time the company makes a claim about job placement rates of a class of students, it has to save documentation related to that claim, including files related to the students or graduates.
“DeVry often presents itself as a better actor in the sector, but what this settlement shows is that they are not immune to the pressures of the sector to bring students in the door and to generate revenue,” said Elizabeth Baylor, the director of postsecondary education at the Center for American Progress, a left-leaning think tank.
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DeVry neither admitted nor denied wrongdoing as part of the settlement. The company is “pleased this matter is reaching a resolution,” Ernie Gibbles, a DeVry spokesman, wrote in an emailed statement. “At no time has the academic quality of a DeVry University education been question.”
The deal comes as the Obama administration looks to cement its legacy as a tough enforcer in the higher education space, specifically for-profit colleges. Earlier this year, the Department of Education banned ITT Technical Institutes from access federal financial aid to enroll new students, amid multiple probes into the school’s dealings with students and investors. Suffering a cash crunch, the company filed for bankruptcy weeks later. Corinthian Colleges also collapsed last year amid financial pressures resulting from additional requirements placed on the school by the Department in order to receive federal financial aid.
DeVry avoided a similar fate after agreeing in October to reserve $68 million to settle claims brought by the Department that the school used misleading advertisements. The agency required the company to set aside the money to continue receiving access to federal financial aid. DeVry’s access to federal student aid also isn’t impacted by the FTC settlement, the company said in a statement.
The deal marks the second roughly $100 million settlement reached by a federal government agency with a for-profit college this year. But the eye-popping number likely won’t affect DeVry’s ability to operate, given that DeVry collected more than $1 billion in financial aid during the 2014 to 2015 school year, according to Baylor. What’s more, the actual cost of the settlement to DeVry is much lower than the $100 million touted by the FTC. In securities filings, the company said it expects to record a pretax charge of between $52 and $55 million as a result of the deal.
“The settlement will cost DeVry much less than $100 million, since the corporation has long known that many students would never be able to repay the private student loans that were pushed on them,” Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau, said in an email. “DeVry’s stock has surged since Election Day, and their recent legal settlements won’t stop the flow of federal funds into company coffers.”
As of 3 p.m. Thursday, DeVry’s stock was up 2.69% from Wednesday’s close. DeVry and other companies in the higher education sector have seen their stocks rise in the wake of the election, amid indications that a Trump administration will be friendlier to for-profit colleges and other industry players.
The deal doesn’t cover federal loans owed by students who attended DeVry during the period of the suit. Federal student loan borrowers who believe they were wronged by their schools can apply to the Department of Education as a part of a process known as borrower defense to have their loans wiped away. Often lawsuits can serve as evidence of wrongdoing for purposes of federal student loan forgiveness, but because the judgment doesn’t specify any particular illegal conduct it could make it difficult for borrowers to rely on it to claim loan forgiveness.
It also appears that a Donald Trump administration will be friendlier to for-profit colleges, which may mean that borrowers petitioning for forgiveness will have a tougher time. “There are indications from the incoming Trump administration that they will be pretty strict about issuing students relief,” Baylor said.
The Department of Education didn’t indicate whether the FTC settlement would help DeVry students with federal loans in their pleas for forgiveness. When the Department announced its own deal with DeVry, the agency said it planned to continue its own investigations into the institution. Any resulting findings could help borrowers in their efforts to pursue forgiveness.
“We are pleased that today’s settlement delivers both financial relief to former students and puts in place protections for current and future DeVry students,” Ted Mitchell, the undersecretary of education, said in a statement.