Do for-profit colleges provide students the same level of transparency that they give their shareholders? Unfortunately, the answer is no. This information imbalance is particularly perverse in situations when schools have come under investigation for potentially misleading students. While shareholders are often told when investigation of a for-profit school may result in a hit on their stocks’ value, the students who were misled are frequently kept in the dark—and additional prospective students may even be taken in by the same misleading claims as the investigation continues.

One case in point is Walden University, an online for-profit college with over 50,000 students. On September 14, 2020, Walden received some bad news: the U.S. Department of Justice and other federal agencies were investigating the school’s online nursing program for misleading students about the program’s cost, its content, and the availability of clinical placements that students would need to graduate. Moreover, since students need clinical placements in order to graduate and work as nurses, the investigation also extended to looking at potential misrepresentations made by Walden in order to maintain accreditation from the Commission on Collegiate Nursing Education. Finally, because Walden had certified to the U.S. Department of Education, in order to maintain eligibility for federal financial aid programs, that it was upholding its fiduciary duties and not making any misrepresentation with a tendency to mislead students, accreditors, or the public, a false statement in these certifications could subject Walden to a loss of federal aid and triple damages (that is, paying the federal government back three times the money it received through these aid programs).

Walden has landed in hot water before. In 2016, class action lawsuits alleged that Walden lied about the cost and length of its graduate programs, falsely suggesting they were cheaper and faster to complete than they actually were. But this new Department of Justice investigation could not have come at a worse time for the school. When the investigation was announced, Walden’s parent company, Laureate Education, was in the process of selling Walden to a rival for-profit education provider, Adtalem Global Education Inc.

At this point, Adtalem might not complete the purchase of the troubled school. Adtalem previously owned DeVry University, but sold that school following a $100 million settlement over misleading students about employment opportunities. Having just offloaded one toxic brand, Adtalem may be loath to acquire another. In fact, Adtalem negotiated an option to abandon the deal if the Department of Education imposes the types of conditions that were applied to DeVry following findings of misrepresentations by that school. Moreover, even if Adtalem wanted to continue with the purchase, Walden’s accreditors at the Higher Learning Commission (HLC) might not allow it: HLC’s policy states that, ordinarily, institutions “under governmental investigation shall not be considered for a substantive change.”

Ensuring Students Are the Last to Know

What Walden and Laureate did after learning that Walden was under investigation reveals a lot about the priorities of the school and of its parent company. First, two days after receiving notice of the investigation, Walden and Laureate informed executives at Adtalem about it—selling Adtalem the school without disclosing the investigation to buyers could subject Laureate and its executives to liability.

Next, on November 5, 2020, both Laureate and Adtalem told their respective shareholders about the investigation. Adtalem included this notice in disclosures filed with the Securities and Exchange Commission (SEC):

DOJ, along with several other government agencies, is conducting an investigation into allegations that Walden University may have violated the federal False Claims Act by misrepresenting its compliance with provisions of its Program Participation Agreement with the U.S. Department of Education relating, generally, to potential false representations to the Commission on Collegiate Nursing Education and false advertising to students about (1) the content and cost of Walden’s Masters of Science in Nursing program, or (2) the availability of clinical site placements required for mandatory practicum courses for such program.

Meanwhile, days before Laureate went public to shareholders with the bad news, it took action that prevented HLC, the accreditor, from sharing the same information with students. HLC policy allows institutions to contest a formal, public notice that the institution is subject to “Government Investigation.” On October 26, 2020, Walden University wrote to HLC to insist that it not be publicly tagged with the Governmental Investigation designation because, according to Laureate, “there has been no governmental allegation of any misconduct or illegal acts.” Laureate has not responded to my request for clarification as to how they could claim that no misconduct was alleged while Adtalem enumerated to its shareholders multiple allegations of misconduct by Walden.

Finally, on November 10, 2020, HLC was able to notify students about the investigation after nearly two months of Walden keeping students in the dark. According to the HLC disclosure, Walden is being jointly investigated by a consortium of agencies, including the Fraud Section of the Civil Division of the U.S. Department of Justice, the U.S. Attorney’s Office for the District of Minnesota, the Offices of Inspector General of the U.S. Department of Education, and the Department of Veterans Affairs. If any of these agencies finds that Walden engaged in misrepresentations, the impact could spread beyond nursing students to all Walden students, if the institution’s bad actions led to its expulsion from federal aid programs.

Time to Realign Priorities

To protect investors from fraud, the SEC requires companies to make disclosures about information or actions that might affect share prices. The Department of Education, however, does not require the same level of transparency from schools on behalf of students—which seems particularly unfair to students at for-profit colleges such as Walden, since these students are the real “investors,” providing the bulk of the school’s revenue and bearing significant financial risks.

Roughly 89 percent of Walden’s revenue comes from student tuition and fees. For the past three years, 75 percent of Walden’s revenue has come from Department of Education backed grants and loans, with the average student carrying a debt load of over $10,000. With that level of investment, students function as Walden’s most prominent investors, and should be informed accordingly when the institution faces legal challenges.

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Furthermore, the obligation to be transparent should not fall on the schools and their parent corporations alone. To the extent that the Department of Education and the Department of Veterans Affairs are aware of evidence that Walden had enrolled students in nursing programs under false pretenses, those agencies also owe students and veterans disclosure of this information.

Moreover, the Department of Education and the Department of Veterans Affairs, as well as any other agencies that have an interest in safeguarding students’ investments in education, should go beyond simply requiring disclosures. Given the seriousness of the potential misrepresentations—which go to the heart of whether Walden graduates would meet minimum qualifications to become licensed nurses—any student who may have enrolled based on false representations should have an opportunity to exit Walden’s program and receive a refund on tuition. While federal investigations can take years, nursing students do not have the luxury of investing years in a program that may fail to adequately prepare them for the profession.

The Department of Education should immediately take steps to ensure that the cost of these refunds (and potential future fees) will be borne by Walden and not taxpayers. An existing program allows the department to seek financial guarantees from schools for refunds, liability, and other financial risks. Walden is already subject to a probationary status known as provisional certification. This status—which would be extended by a potential sale—streamlines the process for the Department of Education to seek financial protection in the form of a letter of credit and revoke Walden’s federal aid based on misrepresentations.

Walden’s potential misrepresentation concerning clinical placements as part of their online nursing education program may prove to be a canary in the coal mine: with the pandemic accelerating the growth of not only online education but also for-profit health care training programs, onsite clinical supervision becomes a very limited resource, restraining growth in ways that are both key to quality assurance and undesirable to shareholders. As this education market evolves, TCF will continue to examine it as well as how regulators respond.