The Federal Trade Commission (FTC) has filed a complaint in a California federal district court against the operators of DeVry University in which it alleges that DeVry violated the FTC Act by misrepresenting the employment rates and earnings of its graduates in advertisements and other communications. The U.S. Department of Education (Department) notified DeVry that same day of its intent to limit the institution's participation in federal student financial assistance programs authorized under Title IV of the Higher Education Act of 1965 (HEA) because of DeVry's failure to meet federal requirements for substantiating the truth of advertisements.

FTC Complaint. In its complaint, the FTC alleged that in television and YouTube advertisements, on its website and Twitter, in promotional brochures, and in "sales pitches" by its representatives, DeVry claimed that 90 percent of its graduates "since 1975" or "for the last 30 years" or in specific years found jobs in their field of study within six months of graduation. The FTC also alleged that using certain of those communication methods, DeVry claimed that its graduates had on average 15 percent higher incomes one year after graduation than the graduates of all other colleges or universities. The FTC charged that because these claims were "false or misleading" or were "not substantiated" at the time they were made, they constituted a deceptive act or practice in violation of Section 5 of the FTC Act.

According to the FTC, the student records used by DeVry to substantiate its 90 percent claims did not provide a reasonable basis for such claims. In addition to allegedly counting graduates as employed in their field of study despite having jobs "that employers, industry experts, graduates, and consumers would not reasonably consider to be in the graduate's field of study," the FTC alleged that DeVry did not count as “seeking employment” graduates who in fact were actively seeking employment.

The FTC also alleged that the sampling and methodology used for the survey that formed the basis of a 2012 third-party report relied on by DeVry for its higher income claim gave or should have given DeVry reason to question the reliability of the report's conclusions and information.  In addition, the FTC claimed that DeVry's reliance was unreasonable because a comparison of information in its own files about graduates' incomes with publicly available income data would have shown that DeVry's higher income claims were untrue.

Department Notice. As a participant in Title IV assistance programs, DeVry must comply with HEA regulations that require it to be able to provide the Department with information necessary to substantiate the truth of claims made in advertisements about job placement rates. According to the Department's notice, it sent a letter to DeVry in August 2015 requesting substantiation for DeVry's claim that 90 percent of its graduates "since 1975" found jobs in their field of study within six months of graduation.

In the notice, the Department concludes that, after reviewing DeVry's submissions, DeVry failed to provide the data necessary to meet the substantiation requirement. As a result, the Department sets forth its intention to impose various limitations on DeVry as a condition of receiving Title IV funds. The limitations become effective on February 16, 2016, unless DeVry requests a hearing or submits written material indicating why they should not be imposed. The limitations include a prohibition on DeVry making claims about graduate employment rates without possessing substantiating student-specific information and retaining an independent auditor to verify such claims. DeVry is also required to send a prescribed notice by e-mail to all students enrolled on the limitation's effective date that DeVry's "since 1975" employment rate claim was not substantiated as required by law and prominently post the notice on the home page of DeVry's website.

In a statement issued in response to the FTC's complaint and Department's notice, DeVry indicated that it intends to vigorously contest the complaint and request a hearing on the Department's action. DeVry also noted that "a task force of 39 state attorneys general and the District of Columbia recently developed a methodology very similar to the one" used by DeVry to calculate employment statistics.

Last spring, the Department sent a notice to San Francisco-based Heald College that it intended to impose a fine of more than $29 million for allegedly misrepresenting job placement rates and failing to comply with federal placement rate disclosure requirements. That college subsequently shut down its campuses.

Misrepresentation of job placement outcomes and earnings for graduates was also alleged by the Consumer Financial Protection Bureau (CFPB) in its actions against Corinthian Colleges and ITT Educational Services. In those actions, the CFPB claimed that the alleged misrepresentations were intended to induce students to obtain loans from the colleges to pay their tuition and fees in violation of the Dodd-Frank Act prohibition of unfair, deceptive, or abusive acts or practices.

Ballard Spahr’s Higher Education Group regularly advises educational institutions on compliance with the HEA and other applicable laws. The firm’s Consumer Financial Services Group is nationally recognized for its experience with the full range of federal and state consumer credit laws, its skill in litigation defense and avoidance, and its guidance in structuring and documenting new consumer financial services products.

Copyright © 2016 by Ballard Spahr LLP.
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