More For-Profits in U.S. Crosshairs

Two proprietary institutions lose federal financial aid after a series of investigations by the U.S. Department of Education.

February 2, 2016

The U.S. Department of Education announced Monday that two chains of for-profit colleges had lost the ability to participate in the federal student aid program.

Marinello Schools of Beauty, which has 23 campuses in five cities across California and Nevada, learned Monday about the department's decision. Computer Systems Institute, which has locations in Illinois and Massachusetts, learned Friday that its recertification for eligibility for federal financial aid would be denied. In both cases, the department found a number of violations by both institutions -- some of the sensational variety.

The department's description of those investigations, which rivaled any network TV crime drama, revealed that CSI submitted false job placement rates to students, the department and its national accreditor, the Accrediting Council for Independent Colleges and Schools. That case involved investigators traveling to the site of a supposed employer to try to verify CSI's job placement information but instead finding a homeowner who told them a very different story (see below).

The department also found that Marinello knowingly requested federal aid for students based on fabricated high school diplomas, while also "underawarding financial aid to students and charging students for excessive overtime."

It isn't the first time the department has cracked down on Marinello. The for-profit had been placed on the department's list of institutions under a more stringent form of cash monitoring.

"Our students depend on higher education institutions to prepare them for careers through a quality education. Unfortunately, some schools violate their trust through deceptive marketing practices and defraud taxpayers by giving out student aid inappropriately. These unscrupulous institutions use questionable business practices or outright lie to both students and the federal government," Under Secretary Ted Mitchell said in a news release. "In these cases, we are taking aggressive action to protect students and taxpayers from further harm by these institutions."

Officials from Marinello, which enrolls about 2,100 students, declined to comment until Wednesday. Officials at CSI, which enrolls about 2,600 students, did not respond to request for comment. CSI's participation in the federal program effectively ended Jan. 31, although the for-profit chain has until Feb. 12 to provide evidence that disputes the department's findings. Officials at Marinello have until Feb. 16 to dispute the findings, but the department notified the institution that participation in federal aid programs will end Feb. 29.

The investigation into Marinello revealed that officials from the institution devised a scheme in which students could get a high school diploma from the online Parkridge Private School. But Marinello would collect the application, transcript and credit card payments from the Parkridge students. The for-profit would also administer and collect workbooks from students and send them to Parkridge for evaluation. Some students paid as much as $150 for the Parkridge program. However, students' diplomas from Parkridge were sent to Marinello and held until they completed the for-profit's courses. Some students were told that their Parkridge diplomas would be invalid if they withdrew from Marinello.

"Marinello controlled the entire process for issuing the 'diplomas' the students received, and that process was far from legitimate. Parkridge was merely used as a front for Marinello in an attempt to legitimize its activities and hide its illegal actions," according to the report.

The Marinello investigation also found that employees at the institution failed to "provide a large percentage of its students the full amount of direct loan funds the students were eligible to receive. As a result of this limitation, students have received less [federal aid] funds than are needed to cover the tuition and fees charged by the institution. In general, the shortage for each student totals a little over $1,000 and the students are required to sign an installment contract with the institution for that amount. The contract requires the students to make monthly payments to Marinello while in school."

In CSI's case, the department found that the institution claimed about 40 students were placed with a home health employer. That "employer" had filed papers establishing a business in August 2014. When investigators attempted to visit the business, they found a single-family residence, which turned out to be the owner's home. The department's investigators interviewed the owner on his porch. The owner claimed that he matched CSI students with home health care employers, but that he did not place that many students. He also said that students placed either worked in home health worker positions or "marketing" positions.

In the department's interviews with students, "not a single one … had ever been employed by [the home health employer]," according to the report.

Many of the students had never heard of the owner or his business. "Two students told the department that [the home health employer] was not a real company, rather it was a single individual … who hired them to hand out fliers to elderly persons on the street for what the students said were 'bogus medical services.' Only one of these two students received any monetary remuneration for her efforts," according to the report

Ben Miller, a former policy adviser at the Education Department who is now senior director for postsecondary education at the Center for American Progress, said he found it interesting that the department essentially completed a "home-built" case to scrutinize these institutions.

"This shows that the placement rate is starting to reach the same level of importance for the department that it holds for attorneys general," he said. "It's interesting that placement rates and misrepresentation [are] what keeps bringing schools down and not terrible default rates or loan outcomes."

Last week, the department -- in partnership with the Federal Trade Commission -- sent a limitations notice to stop DeVry University from allegedly making false representations about its job placement rates.

The Marinello chain of 56 campuses across the country received more than $87 million in Pell Grants and federal loans for 2014-15, and CSI campuses received approximately $20 million in federal funding during that same time period.

(Update: A statement on our editorial independence may be found here. Quad Partners, which is an owner of Inside Higher Ed, owns 3.6 percent of a holding company that owns Marinello.)


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