2016 Lane Reports

Trump University is Not Alone: Let the Student Beware

The Lane Report, March 2016
Tuesday, March 1, 2016 10:00 am
by Joshua S. Kreitzer

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During this Presidential campaign season, Donald Trump has received criticism for his defunct Trump University, a school now facing two class action lawsuits from former students. Trump University was really a series of seminars in real estate investing, but some former students claim that it failed to provide the education that it promised. The New York State Education Department even required the school to change its name by dropping the word “University,” because it did not offer academic degrees nor had it been approved by the state’s Board of Regents.

Trump University is far from alone in the world of education as a school that has been accused of failing to live up to its promises to prospective students. More mainstream institutions have faced similar accusations. For example, a few weeks ago, the Federal Trade Commission (FTC) sued DeVry University, alleging “unfair or deceptive acts or practices in or affecting commerce” under the Federal Trade Commission Act. DeVry, a private, for-profit college with over 278,000 graduates over the last 40 years, is accused of misleading students by claiming that 90% of graduates who were actively seeking employment landed or obtained new jobs in their field of study within six months of graduation, and by claiming that DeVry graduates with bachelor’s degrees earned 15% more than graduates with bachelor’s degrees from other colleges and universities.

According to the FTC, DeVry’s claims were not reasonably substantiated. The FTC’s complaint states that DeVry included in its “90%” claim a substantial number of graduates who continued in the same job that they had when they enrolled at DeVry. The FTC also states that DeVry included in that claim a number of graduates whose post-graduation jobs could not reasonably be considered to be in their fields of study, such as a graduate in technical management with a human resources specialization working as a rural mail carrier, and a graduate with a degree in business administration (accounting specialization) working as a secretary at a prison. Also according to the FTC’s complaint, DeVry also excluded from their calculations a number of graduates who were actively seeking employment.

The FTC is also challenging the claim that DeVry graduates earn 15% more than graduates of other colleges, on the grounds that this statistic came from a study which sampled only limited numbers of graduates, even though DeVry itself had its own data about the earnings of a much larger number of its own graduates and access to publicly available data about the incomes of graduates of many other colleges. Nor did the study control the salary data for the graduates’ ages, years of experience, or field of study.

On the same day that the FTC filed its complaint in a Federal court, the U.S. Department of Education notified DeVry that in order for its students to remain eligible for Federal financial aid, DeVry would be required to stop making any representation about its alumni’s employment rates unless those claims could be substantiated with information compiled with data from individual graduates. DeVry is also to be required to notify its current students that it is unable to adequately substantiate the truthfulness of its marketing claim which said, “Since 1975, 90% of DeVry graduates system-wide in the active job market held positions in their fields of study within 6 months of graduation.”

For its part, DeVry responded to the lawsuit and the Department of Education’s action by stating that it “measures the employment and earnings results of its graduates on a sound, rational and transparent basis,” and that the methodology used by DeVry is similar to the methodology recently adopted by a task force consisting of the attorneys general of 39 states. DeVry plans to vigorously contest the lawsuit and seek a hearing on the Department of Education’s action.

At the undergraduate level, for-profit colleges such as DeVry seem to have faced the most scrutiny over the accuracy of their job placement claims in recent years. Yet law schools have also faced similar accusations. And in legal education, the controversy has encompassed private, non-profit law schools, including some associated with major universities.

At least fifteen law schools have been sued in recent years based on claims that the schools claimed that large percentages of their graduates secured employment within a specified time after graduation – typically 90% or more within nine months of graduation. These claims appeared not just in the law schools’ own brochures, but were also reported to the American Bar Association and to U.S. News and World Report. Yet, according to the lawsuits, the law schools’ employment statistics often included jobs that were temporary or part-time, did not require a J.D. degree, or were out of the legal field entirely. Some law schools were accused of hiring some of their own unemployed graduates as research assistants in order to make the schools’ employment statistics look better, with some of those jobs beginning nine months following graduation – the same time at which the schools are required to compile the employment statistics. These lawsuits typically assert state-law claims making such allegations as fraud, unfair business practices, deceptive acts, and/or negligent misrepresentation.

One such case, filed against Thomas Jefferson School of Law in San Diego, is set for trial this month (March 2016). A California judge, refusing to dismiss the case, wrote, “A reasonable consumer would not believe employment figures included any and all employment, which would render the figure meaningless in the context of a legal education. A reasonable consumer expects the employment figure to include graduates who work in law-related jobs.”

However, most of the lawsuits against law schools have been dismissed. In one fairly typical case brought against New York Law School, the New York Appellate Division ruled that the school’s disclosures “were not materially deceptive or misleading,” stating that the school had not made any express representations about whether its employment statistics pertained to full-time or part-time work, and had disclosed that its statistics “were based on small samples of self-reporting graduates.” The court dismissed the students’ claims, but nevertheless expressed sympathy for their concerns, quoting Felix Frankfurter as saying, “In the last analysis, the law is what the lawyers are. And the law and lawyers are what the law schools make them.” The court stated that law schools “should be dedicated to advancing the public welfare … [and] have at least an ethical obligation of absolute candor to their prospective students.” Yet other courts have been even less helpful to the unemployed or underemployed law school graduates suing their alma maters, stating that the plaintiffs were college graduates when they enrolled in law school and should have done more due diligence on their law schools before taking on significant debt to enroll.

In light of the ongoing controversy over schools which misrepresent themselves, the best advice for students is to be wary of job placement claims – at least those which have been made by the schools themselves and not audited by an independent authority. Far too many students have found that their schools were not necessarily the ticket to a better career. Let’s hope that the Federal Trade Commission and the Department of Education will continue their efforts to deter schools from exaggerating their placement statistics – and shine a spotlight on misrepresentations whether made by for-profit or nonprofit schools.

The Law Offices of Marc J. Lane, P.C. represents many nonprofit and social enterprise educational facilities and institutions. If you’d like more information about their legal, tax and fiduciary obligations, please feel free to contact Marc J. Lane in confidence at mlane@MarcJLane.com or 312/800 – 372-1040.

Joshua S. Kreitzer is a Senior Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. Mr. Kreitzer is a graduate of Northwestern University (J.D.), the University of South Florida (M.A.), and Harvard University (B.A.)

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