Dive Brief:

  • More students have joined a lawsuit against National American University that alleges the for-profit college misled students about its cost, accreditation, education quality, career placement services and their employment prospects.
  • Attorneys filed the lawsuit on behalf of two students in a Missouri circuit court earlier this year. Six more students joined on Aug. 8. 
  • The class action comes as the embattled company sheds its physical campuses and attempts to move entirely online.

Dive Insight:

The attorneys leading the lawsuit previously sued Wright Career College, a former technical college based in Kansas, that grew to include 264 students and eventually won $3 million in damages.

In the latest lawsuit, students put forth a set of allegations that National American left them with a “worthless” education and “crippling” debt. They contend the university said credits would transfer that ultimately didn’t; programs lasted longer and cost more than anticipated; high employee turnover affected the quality of instruction; no administrative staff were available for students taking evening classes, “despite express promises that there would be”; and a lack of transparency on costs.

Additionally, the lawsuit contends, NAU “trained and deployed an army of aggressive, persistent enrollment advisors” to draw students.

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NAU did not immediately return a request for comment that Education Dive emailed to its CEO Ronald Shape on Friday.

The for-profit college is tight on cash and earlier this year indicated to investors there is “substantial doubt” it would survive another 12 months. Its market value had diminished so much that it left the Nasdaq for a penny stock exchange at the end of 2018. 

The college is closing its physical campuses and restructuring to offer education only online. But that’s not a sure bet.

In light of its financial position, the U.S. Department of Education in March asked it to post a letter of credit for as much as 50% of its Title IV awards to remain eligible to offer students federal aid. National American announced in May that it received a one-year, $8.5 million loan from the Center for Excellence in Higher Education, another college operator, to cover that sum.

As of February 28, National American enrolled around 3,800 students, according to documents filed with the SEC. Beginning in May, it was expected to have a loan payment of $800,000 due each year for four years. But at the close of the quarter ended Feb. 28 it had just $425,000 in cash and cash equivalents — down from $4.6 million a year earlier. To restore its liquidity, National American has cut jobs and is attempting to sell off assets. 

National American is one of several for-profit college operators that is trying to adjust its business model in response to the pressures of additional regulation and the sector’s tarnished reputation. Others, including Zovio (formerly known as Bridgepoint Education) and Grand Canyon Education, are partnering with universities as educational services providers. Adtalem Global Education is focusing on professional education, and Laureate Education is looking mostly abroad. Several others have closed.

The companies are still dealing with the ramifications of the recent regulatory crackdown on the sector, however. In July, Career Education Corp., which runs American InterContinental and Colorado Technical universities, announced it would pay $30 million to settle a lawsuit brought by the Federal Trade Commission alleging it used deceptive marketing practices to attract students. In January, it settled a five-year lawsuit with 49 state attorneys general over its marketing and recruitment. The company denies wrongdoing in both cases.

National American also faces a lawsuit from a former official who alleges the university illegally paid bonuses tied to student recruiting, misrepresented its medical assisting program’s qualifications for accreditation and didn’t comply with federal 90/10 rules, the Argus Leader reported.

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