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California Art Institutes Settle Lawsuit with $4.4M Agreement

Students at the for-profit California Art Institutes could get part of their education paid for under a $4.4 million settlement between the City of San Francisco and parent company Educational Management Corporation.

Students at the for-profit California Art Institutes could get part of their education paid for with a scholarship under a new settlement between the City of San Francisco and the parent company that owns and operates the colleges, according to a report by San Francisco Weekly.

The city claimed the colleges allegedly used deceptive marketing tactics resulting in underestimated program costs for students and inflated job placement figures for graduates.

The $4.4 million agreement includes provisions for a sweeping array of reforms to the marketing and reporting practices of the for-profit Educational Management Corporation. The agreement requires the corporation to pay the city $1.95 million to settle the dispute, endow scholarships for returning students and new students and re-calculate graduation and job placement rates. 

"I hope this agreement is a bellwether for other for-profit colleges, highlighting the need to fully inform students about their education costs and job placement prospects," City Attorney Dennis Herrera said in a statement released to the press.

The settlement is the result of an investigation by the City Attorney's Office into the marketing practices of the Art Institute of California of San Francisco and other California Art Institute locations. The California Art Institutes hasn't admitted or denied any violations of law.

The agreement stipulates that $1.6 million will go to create a scholarship fund for returning students who withdrew from the Institute's programs between 2009 and present day, and will be available to returning students for five years, or until it is exhausted. In addition, the company will offer $850,000 in general scholarships to new students.

The corporation has agreed to new methods of calculating the percentage of enrolling students that graduate with degrees, and the percentages of students that are employed within their field of study or employed at all. The company says they will publicize those figures in their promotional materials.

The school also agreed to train advisors to counsel students on the long-term effects of student loan debt and default.

The agreement also includes enforcement provisions that compel the company to notify the city attorney of any breaches of the agreement on its part. A violation could make the company subject of a future lawsuit, under the "assurance of voluntary compliance" agreement.

"In a workplace where so much depends on education and training, students deserve accurate information about the schools they attend -- and that's exactly what California law requires," Herrera said.