BUSINESS

Marinello Schools of Beauty abruptly shuts down after federal allegations

Marinello Schools of Beauty abruptly shut down, closing all 56 of its campuses, including 39 in California, after the U.S. Department of Education said the for-profit cosmetology school was improperly allocating federal student aid money.

The Department of Education said earlier this week that it would stop providing federal aid to 21 campuses in California and two in Nevada after it found that the school was knowingly requesting aid for students without a valid high school diploma, underawarding some student funds, charging fees to students who took too long to finish their programs and committing "other acts of misrepresentation."

Marinello failed to follow through on promised training in cosmetology and barbering, the Education Department said in a 10-page letter describing the reasons it had decided to stop providing aid. Department staffers spoke with students “who supposedly ‘graduated’ yet were unable to cut hair,” it said.  

MORE: Get our best stories in your Facebook feed >>

In addition, the department’s investigation found that Marinello enrolled students after steering them into a fabricated high school diploma program.

The California campuses involved in the investigation were in the Los Angeles area, Moreno Valley and Sacramento.

In 2014-15, Marinello received more than $87 million in Pell Grants and federal loans, according to the Department of Education. The school, which was founded in 1905, reported that it had 4,329 students enrolled as of Jan. 7, according to the department.

"We are taking aggressive action to protect students and taxpayers from further harm by these institutions," Undersecretary Ted Mitchell said in a statement.

The department said Marinello could submit evidence to dispute the findings by Feb. 16 and potentially continue to receive federal financial aid.

But Marinello said it would shut down instead, closing its California, Nevada and Utah campuses Thursday and its Connecticut and Kansas schools Friday.

In a letter to students posted on the school's website, Marinello said it was in the process of arranging partnerships with other schools so students could complete their studies. The school said it will host meetings on its campuses next week to give out transcripts and discuss how students can continue their studies elsewhere.

"We want you to know that we did everything in our power to avoid this unfortunate conclusion and keep your school open," Marinello Chief Executive Rashed Elyas said in the letter. "Unfortunately, the Department of Education’s unprecedented and unfounded actions left us with no other option except to close our schools." 

Marinello is owned by B&H Education Inc., a Beverly Hills company.

Sara Moore, 21, graduated in December from the 1,500-hour-long cosmetology program at a Marinello campus in Connecticut. She said that for months, she’d heard rumors the school would shut down.

“It was no surprise that it was closing,” she said in a direct message on Twitter. “My campus had no director, financial aid representative and no admissions instructor from November on, and they were anticipated to close in April.”

After graduation, she said, she received letters from Marinello saying that she owed $800 without any explanation. Moore said she tried to call the corporate office to explain that her payments were taken care of through financial aid but later got another letter saying she owed $3,000.

The Grove, Ohio, resident said she works as a waitress because Marinello will not release her records to allow her to get her cosmetology license until she pays the charges. Moore said she has been unable to reach anyone who can help her.

Marinello and B&H did not respond to a reporter's phone calls seeking comment. Marinello also did not respond via the live chat function on its website.

The Obama administration has been scrutinizing for-profit colleges since 2009, amid evidence that many schools were saddling students with massive debts they couldn’t repay. The industry soared during the Great Recession as schools marketed heavily to growing ranks of unemployed workers seeking new skills.

But the rapid growth attracted the attention of federal and state authorities, who noted poor graduation rates and ballooning student loan defaults at many of the schools. For-profit colleges on average charge more than four times as much as community colleges, according to the College Board, and they cost significantly more than the in-state tuition at public four-year colleges.

For-profit schools enroll about 11% of the nation’s college students, but their students are responsible for 44% of federal student loan defaults, according to federal data.

Federal officials have cracked down recently. Last year, the Department of Education instituted new rules that would cut off federal funding to programs that consistently leave students with large debts compared with  their income.

An Education Department investigation into falsified job placement rates at Corinthian Colleges led the company into bankruptcy last year. Other major for-profit college chains, including ITT Educational Services and DeVry Education Group, face lawsuits from the Consumer Financial Protection Bureau and the Federal Trade Commission alleging the schools misled students.

For more business news, follow @smasunaga on Twitter.

MORE FROM BUSINESS

Stocks edge lower after disappointing jobs report

Chicago entrepreneur buys a large stake in L.A. Times' owner

A disappointing 151,000 U.S. jobs are created in January, but wages rise

Copyright © 2016, Los Angeles Times

UPDATE

1:18 p.m.: This article was updated throughout with additional details. 

9:32 a.m.: This article was updated with information about scrutiny of other for-profit schools. 

This article was originally published at 9:20 a.m.

 

63°