Trump University a Lesson in the High Cost of For-Profit Education

March 10, 2016

It hit the news this week that my alma mater (well, one of them at least), USC, will now be charging undergrads over $50,000 for the right to attend one year of classes, making it unofficially the most expensive college in the country. And that doesn’t include room and board or the $26 USC tank tops that seem to be way more in vogue than when I was an undergrad.  Nationwide, the cost of a prestigious college degree has risen at four time the rate of inflation since 1971, when a year at Harvard would set a family back $2,600.

Aside from the sticker shock and often oppressive student loans involved in higher education, simply getting admitted to college is a whole other matter, involving high GPAs, test scores, recommendations, extracurricular and so on. Furthermore, while going to college was once seen as a worthy goal for everyone and essentially a requirement for those in the upper middle class, many cultural critics question the value of four years of highly-priced classes in our increasingly freelance/entrepreneurial economy. (I myself quite clearly remember the experience of graduating from a liberal arts college with an English and Religion double major, and not finding any job upgrade from my pizza delivery job, and so I promptly plunked down $600 worth of tips for a two-week bartending course to learn how to make drinks no one has ordered since 1966 – Grasshopper, anyone?)

And, yet, when workers and students think about getting that next job, career, or entrepreneurial opportunity, education seems like the most natural route to get where they want to be. Putting together the societal forces of increasingly expensive 4-year colleges and grad schools with decreasing assurances of a monetary return on the degrees, it is no surprise that, over the past few decades, selling would-be students on pricey alternatives to higher education with the promise of riches and/or career satisfaction is a huge business. Or in the case of Donald Trump’s much-maligned Trump University, a yuge business — or, according to many of its past students and the New York Attorney General’s office,  a yuge scam. The now defunct real-estate seminar scheme has been in the news due to the mudflinging of the presidential race, but the case of Trump University and the two yuge lawsuits (okay, I’ll stop) it has engendered bring to light litigation and financial risks that students, employers and educators will all want to keep in mind.

The Art of the $1,495 3-Day Seminar Deal

Donald Trump had initially achieved nationwide fame in the 1980s through building the NYC towers and tropical resorts that famously bore his name, and through releasing the #1 best-selling book The Art of the Deal. But his real breakthrough to super-fame came in 2004 when he began hosting Celebrity Apprentice, which he did for 12 years. As one NYC real estate law firm partner told me in early 2004 during a recruiting dinner, Celebrity Apprentice accomplished the remarkable task of making Trump “likable.” Hot off that nationwide buzz, Trump started Trump University in 2005, and sold real estate, asset management, and entrepreneurship courses ranging from $1,495 for a 3-day seminar to a $34,995 “Trump Gold Elite” package, all of which promised to teach students the business secrets he had taken a lifetime to hone.

As might be expected, some of the people forking over these huge sums to Trump University found themselves with buyers’ remorse after they saw what they got for their money. Common complaints were that the speakers who conducted the seminars were non-experts who did not deliver on the promise of being “professors” who were “hand-picked” by Trump, many of the “secrets” taught at the seminars were simply lifted from The Art of the Deal, and, despite the high tuition and name, Trump University generally did not resemble a university.

Two high-profile lawsuits were filed against Trump University (which changed its name to Trump Entrepreneur Initiative in 2010 in response to allegations that the name was misleading): a class-action lawsuit filed 2010 in California state court, and a $40 million lawsuit brought by New York State Attorney General Eric Schneiderman in 2013. Both cases are ongoing with depositions potentially occurring throughout 2016. Combined, the two lawsuits make the following allegations against Trump University:

  • The school’s actions violated California’s unfair competition laws
  • The school’s claims violated California’s false advertising laws
  • The school’s actions violated New York and Florida’s consumer protection statutes
  • The school’s actions constituted elder abuse under Florida and California law
  • The school violated New York law by calling itself a “university” despite not having New York university accreditation
  • Despite claims to the contrary, Trump did not hand-pick the instructors, devise curriculum, or show up to seminars (although some students did get the opportunity to have their picture taken with a Trump cardboard cutout)

As is his custom, Trump has vehemently disputed the allegations and responded by arguing that his students were mostly satisfied, and even put up a website called www.98percentapproval.com with student evaluations to plead his case.

For-Profit Universities in the Crosshairs

Trump University is neither the first and by no means the last time a seminar/online-based higher education system has come under fire. The largest university in the United States now is the University of Phoenix, which you may know from their frequent television commercials and highway-adjacent campuses and signage. In 2015, the Obama administration cracked down on the University of Phoenix by launching a Federal Trade Commission probe into the school, looking into its business practices relating to marketing, academic programs, billing, and recruiting practices. The university, which has received a whopping $448 million alone in federal GI Bill funds alone for its online programs, has also faced scrutiny from the Department of Defense, not to mention students themselves who have argued they paid tens of thousands of dollars for worthless degrees.

One common student complaint against the University of Phoenix is that students thought the degree they were working towards entitled them to become licensed practitioners of a service in a given state (e.g. a teacher or a social worker) only to find that their state did not honor the online degree as being sufficient for the license.

The University of Phoenix is not the only for-profit to come under fire from regulators and students alike. Corinthian Colleges was ordered to pay $550 million to the Consumer Financial Protection Bureau just last year for steering students into predatory loans.  Also in 2015, Educational Management Company, which serviced 100,000 students across the country, was forced to pay $95.5 million to settle a Department of Justice investigation into illegal recruiting practices and consumer fraud violations.

Best Practices for For-Profit Educators, Students, and Employers

While there have certainly been many examples of abuse and unmet expectations in the for-profit/seminar/online education world (and I think, for any of us who ever paid our own way through school, we can think of examples of overpriced classes at even the most reputable universities that made us ask, “I paid x thousands of dollars for that?”), we need education, and seminars and trade schools can offer cost-effective, practical alternatives to costly, traditional universities. After all, it shouldn’t be the new normal that, every time a person wants to explore a new career or skill, that they should go into six-figure student loan debt which will follow them for decades, especially where the monetary returns on the education are indefinite and/or modest. Likewise, we don’t want individuals or entities gifted at passing on valuable knowledge and career skills discouraged or hampered from doing so. With that, below are a few general guidelines that parties engaged in the for-profit educational world should keep in mind.

EDUCATORS

  • Comply with all applicable accreditation processes and requirements in a given state or jurisdiction. While accreditation may not be necessary for the type of education you are providing in a given jurisdiction (e.g. the state of California allows the graduates of non-accredited law schools to sit for the bar), there may be certain business practices that are only allowed for schools that are properly accredited.
  • Make sure all promotional materials and marketing statements are accurate and comply with state marketing and trade practice rules. Note that with Trump University and the other for-profit school controversies, the issues are less to do with the quality of the education (disputing the quality of education in court would be a challenge), and more to do with whether the school literally delivered on the claims it made when recruiting students.
  • Encourage candid and well-documented student evaluations throughout the educational process. While Trump is arguing that the student feedback showed a 98% approval rating, observers point out that the feedback included non-paying students and that 1/3 of paying students demanded a refund.

STUDENTS

  • Do outside research on the educational entity besides what is provided to you in marketing materials. Facts presented in marketing materials can be spun in a misleading manner, but it is important for you as the potential student to scrutinize the materials for what they actually say and to compare this with outside sources, such as student reviews, state accreditation resources, and independent evaluations and employment statistics.
  • Keep a critical perspective throughout the educational process. Do not be afraid to demand the services and resources that you were sold, and don’t let yourself be caught up in fanciful but unrealistic promises of what a course or seminar can provide.
  • Make your educational goals explicit to the school (e.g. I want to be a licensed nurse’s aide in my state) and get a statement in writing that the education you are purchasing comports with those goals.

EMPLOYERS OF STUDENTS

  • If you are an employer of a student who will be paying for the student’s education, encourage the student to look at multiple educational sources rather than getting caught up in the sales materials for one school.
  • Reinforce the student’s need to consult independent resources attesting to the educational value associated with a given school or educational program.
  • Work with the student to assure that the contents of the program and the skills of the teachers  will translate into improved, practical results on the job.

As Nelson Mandela said, “Education is the most powerful weapon we can use to change the world.” But becoming more educated as to the proper ways to go about buying and selling that education may be a first step in helping to make that change.

 

Jeremy Masys

By

Jeremy Masys is a writer, attorney, and musician living in Los Angeles. He earned his JD at New York University School of Law and attended USC's School of Cinematic Arts as an Annenberg Fellow. Jeremy has practiced white collar defense law in New York and Los Angeles.

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