U.S. forces for-profit chain’s CEO, CFO to step down

Two senior executives at the parent company of a troubled for-profit chain will resign as part of a settlement agreement reached with the U.S. Education Department—the first time the agency has required such a move.

The agreement with the International Education Corporation, which owns Florida Career College, a chain of 11 campuses that’s closing Feb. 15, comes after the department alleged that FCC officials cheated on the tests that determine whether students without a high school diploma can benefit from postsecondary education. Students who don’t pass what’s known as the “ability to benefit” test can’t access federal financial aid.

As a result of that investigation, the department decided last April to cut Florida Career College off from accessing federal financial aid by September. The agency later extended that deadline to the end of January to allow current FCC students to finish their programs. Federal data show that about 12,000 students were enrolled in FCC’s programs in 2021 across the 11 campuses. IEC, a California-based company, also operates four other institutions that focus on short-term career education programs.

“What caused us to take unprecedented steps was evidence showing that FCC was focused on maximizing enrollment and therefore Title IV dollars at all costs,” said Kristen Donoghue, chief enforcement officer at the Office of Federal Student Aid. (Title IV is part of the Higher Education Act, which authorizes federal financial aid programs.)

FCC officials and senior leaders at IEC knew about and encouraged the cheating, Donoghue said. FSA found that half of the students who were enrolled after passing an ATB test dropped out before completing a 10-month program.

“The vast majority of those students ended up with student loan debt and no certificate,” she said. “FCC’s misconduct demonstrated a serious disregard for and violation of the fiduciary duty standard. That’s the kind of violation that the department takes very seriously.”

IEC officials initially fought the department’s allegations, but the settlement ends the company’s appeal and finalizes the decision. Under the agreement, IEC will not appeal the FCC decision and will extend a letter of credit to cover any liabilities associated with the closure, which will be capped at $6,015,824.

The settlement agreement also resolves the department’s ongoing investigations into two other IEC-owned chains—United Education Institute and UEI College—and adds stricter requirements for those institutions to follow in order to continue accessing federal financial aid.

Those two institutions’ participation in Title IV was conditioned on whether the company’s chief executive officer and chief financial officer stepped down. Donoghue said that’s a “very important and unprecedented step for accountability.”

“We felt it was appropriate, given the wrongdoing that was seen at FCC,” Donoghue said.

CEO Fardad Fateri, who has led IEC since 2008, said in a statement that the settlement is the “very best outcome” for the company’s students, employers and campus communities.

“In our unwavering commitment to our students, employees, and employer partners who depend on us to prepare well-trained graduates for the modern workforce, this outcome with the department is a testament to IEC’s dedication to transparency, accountability, regulatory compliance, and strong student graduation and employment rates,” Fateri said.

As part of the settlement, the Education Department is provisionally certifying United Education Institute and UEI College for three years, which means their campuses will have to adhere to stricter rules in order to access the financial aid. That includes blocking the colleges from using ATB tests to qualify students for financial aid and requiring them to preserve all materials used in recruiting students, along with any records of student complaints, which Donoghue said “will facilitate future oversight” of the colleges.

“We feel that those conditions plus the others that are in the agreement protects students and protects the program,” Donoghue said, adding that while settlements with the department are common, several of the provisions in this agreement are not.

The two chains have 19 separate campuses. In 2021–22, nearly 32,000 students were enrolled. The two institutions took in about $95 million in Pell Grants in that academic year and awarded $165 million in federal student loans, according to an analysis of federal data.

The department had been investigating potential ATB violations at United Education Institute and UEIC. However, it didn’t complete that inquiry before the settlement, which ends the ongoing investigation. The agreement doesn’t prevent the department from investigating future allegations against United Education Institute or UEIC or barring IEC executives from participating in the federal financial aid system.

“This strong agreement with International Education Corporation demonstrates Federal Student Aid’s commitment to holding schools and individuals accountable for abiding by the laws and regulations that govern the federal student aid programs,” FSA chief operating officer Richard Cordray said in a statement. “Our Enforcement Office will continue to investigate reports of wrongdoing by schools and individuals to protect the integrity of our programs.”

The Education Department has sought in recent years to put in place measures that would allow it to hold individuals who run private colleges financially responsible if their institutions fail to operate in a financially responsible way.

The department hasn’t gone that far here, but Donoghue said the agency is committed to holding individuals accountable where appropriate.

“You can absolutely see hallmarks of that in this agreement,” she said.