TINA’s Take: FTC Puts For-Profit Higher Education Institutions on Notice

WHAT’S UP

The FTC has put dozens of for-profit higher education institutions on notice that engaging in practices it has previously found to be unfair or deceptive could lead to civil penalties of up to nearly $44,000 per violation.

The schools receiving notices of penalty offenses represent the 70 largest for-profit colleges in the country based on enrollment and revenue, the FTC said, and include institutions previously sued by the FTC for misleading students about post-graduate job opportunities and earning potential, such as DeVry University and the University of Phoenix.

The FTC said the notices are meant to deter false claims and that just because a school receives one doesn’t mean the FTC has reason to believe the school is breaking the law.

HOW WE GOT HERE

“Forty-three million Americans owe $1.6 trillion in federal student debt,” FTC Commissioner Rohit Chopra said at a press conference earlier this month. “Hundreds of billions of dollars in student debt have also gone into default.” A disproportionate number of students that have defaulted on their students loans attended for-profit colleges, Chopra said.

Meanwhile, consumer complaints to the FTC about institutions overselling the quality of the education they offer have surged roughly 70 percent between 2018 and 2020, according to Samuel Levine, director of the FTC’s Bureau of Consumer Protection, who also spoke at the press conference.

THE MARKETING PITCH IN QUESTION

The notices outline seven practices that the FTC has determined are unfair or deceptive and thus are unlawful under the FTC Act. They include:

• Misrepresenting the need or demand for consumers who have graduated from, or completed courses at, a specific institution;
• Misrepresenting the employment prospects of an institution’s graduates, the ease with which an institution’s graduates will be able to obtain employment or the opportunities for employment in any field in which a course of instruction is offered; and
• Misrepresenting the amount of money consumers who have graduated from, or have completed courses at, an institution will or may earn.

This is the first time the FTC has deployed its penalty offense authority to protect students, Levine said. Levine said each student deceived could constitute a separate violation of up to $43,792. So if 5,000 students are misled, that’s 5,000 violations, for a total penalty of as much as $219 million.

So far the largest monetary penalty the FTC has obtained in a case against a for-profit school is $191 million. That’s what the University of Phoenix agreed to pay in 2019 to settle FTC charges that it lied to consumers about connections it had with employers such as Microsoft, Abode, Twitter and Yahoo. As part of that settlement, the FTC sent refunds to more than 147,000 students, roughly 30 times the number of students cited in the example above.

WHAT’S NEXT

At a time when the FTC’s ability to obtain consumer redress is severely limited following the Supreme Court’s recent AMG Capital decision, it’s crucial that the agency use all the tools at its disposal to make scammers pay. And, as a subsequent notice about fake reviews and other misleading endorsements shows, its penalty offense authority is one of those tools.

TINA.org is hopeful that the FTC continues to use its penalty offense authority to put additional for-profit schools on notice – according to the National Center for Education Statistics, there were 679 for-profit schools in fall 2019 – and when it finds a school in violation, pursue monetary penalties that go beyond just the cost of tuition.

The FTC should also use this tool to address other industries known to use deceptive marketing tactics, such as the direct selling industry.

In June, TINA.org called on the FTC to initiate a similar penalty offense program targeting the direct selling industry and its marketwide practice of using deceptive earnings representations and false health claims to recruit distributors and provided the FTC with a list of more than 660 direct selling companies to get started.

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