When Margaret Willson) signed up in November, 1988, for a home-study computer course offered by National Technical Schools in Los Angeles, she thought she was on her way to a new career in computer programming.
But a year later, Willson is fighting mad. “It was a bunch of garbage,” said the Palmdale resident, who graduated from the course last spring only to find that the skills she learned from the NTS course didn’t qualify her for an entry level computer job.
“I’m going to go into default on my student loan and it’s not my fault,” said Willson, who borrowed nearly $3,000 to pay for the course. “It’s the school’s fault for ill-preparing me for a job that I thought would be my future.”
Willson isn’t alone in her anger. NTS, which is owned by United Education & Software, an Encino-based trade school operator, is in hot water with federal and state regulators and was sued for $24 million earlier this month by Calif. Atty. Gen. John Van de Kamp. The civil complaint charges the school with misleading students, failing to refund loan money after students dropped out, misrepresenting its actual drop-out rate of more than 90% and numerous other offenses.
United Education denies the charges. Also, the company has filed a $10-million lawsuit against four officials of the California Student Loan Association, the state agency that administers the federal student loan guarantee program. The agency last month said it would stop backing loans taken out by NTS students. But a federal court in Los Angeles ruled earlier this month that the agency cannot take that action pending a hearing in January.
Nonetheless, the home-study school last week said it had stopped accepting new students because banks would no longer approve loans for its students, and it laid off 170 of its 196 workers. In its suit against the student loan association officials, United Education charged the officials with making false and misleading statements to bank executives to induce the banks to stop making loans to NTS students. The association declined comment on the suit.
What went wrong at NTS? Former employees and students paint a grim picture of a badly mismanaged operation, where paper work was routinely lost; students were canceled from courses for no reason, while others dropped courses out of frustration; a toll-free phone set up for student inquiries was out-of-order for weeks at a time, and when it did work, phone calls weren’t returned; computers promised to students as part of the cost of a course were never sent, and information was falsified by salespeople who enrolled students.
“The whole thing runs around mismanagement,” said Marilen Hohn, who was director of administration at NTS until October, 1988.
At one point, sales representatives for NTS were filling out answers to tests that would qualify non-high school graduates for government-guaranteed student loans that could be used for NTS classes, according to a U.S. Department of Education audit of NTS that was released in September.
“It all boils down to greed,” said Jerome Hohn, Marilen’s husband and a director of education at NTS until August, 1988.
The school, which was purchased by United Education in December, 1985, is divided into a “residence” school, where students attend automotive and electronics classes, and a home-study division, consisting mostly of a computer programming course called “Compulit.”
NTS, which currently has about 6,000 students in its home-study program, typically charges about $2,700 for Compulit.
While the controversy so far has involved only the home-study unit, the entire NTS operation has come under fire from former employees and students. And Jerry Smilowitz, California’s deputy attorney general, said his department is looking at all of United Education’s 26 schools. “So far, this is the only one we’ve taken action against,” he said.
It’s hard to imagine that United Education, which was once a thriving, profitable company, could stand much more bad news. The NTS fiasco is only the latest setback for United Education, which is still reeling from the impact of last year’s federal probe of its former student-loan processing subsidiary, which United Education has since sold. That investigation uncovered widespread bungling at the unit, including lost loan documents and failure to notify borrowers who were delinquent in repaying government-guaranteed student loans.
As a result of the loan foul-up, United Education has been named as a third-party defendant in a lawsuit brought by several banks that backed the loans. The banks stand to lose up to $650 million because the government said it won’t pay for loans that were not properly serviced and went into default.
United Education, which was profitable as recently as last year, reported a $5 million loss in its fiscal second quarter that ended July 31 and saw its stock sink from a 1988 high of $16.375 a share to 31 cents as of Friday’s close.
Aaron Cohen, UES’ president and chief executive, who has been named along with the company in shareholder lawsuits and the suit filed by the attorney general, would not respond to questions regarding the problems at NTS. He did say the company must submit a formal reply to the Department of Education audit by Thursday. Until then, he said, “these are not subjects our attorneys would like us to discuss at this time in the news media.”
R. Nelson Carnes, who was NTS’ executive director until he resigned in June but who remains a United Education director, referred questions to United Education executives.
Jeffrey Weiss, a former marketing representative for NTS, said he told Cohen last spring about many of the problems at the school. Among other complaints, Weiss told Cohen that students who dropped the Compulit course weren’t receiving the refunds they were due, financial aid information and students’ completed tests were routinely lost and students were cancelled without explanation.
Cohen said then that he was preoccupied with the problems at the loan-servicing business and that he would look into NTS, Weiss said.
But NTS’ troubles began when United Education acquired the school, said Marilen Hohn, who worked at NTS since 1982. The school, which was founded in 1905 to train auto mechanics and later expanded into electronics, had fallen behind the times by 1985 and courses were outdated, Hohn said. When United Education took over, the company decided new course material was needed to drum up business, she said.
That’s when NTS developed Compulit. “The Compulit course looked really good on paper,” said Al Galaviz, who was director of graphic arts at NTS until November, 1988. “But it was too rushed. There wasn’t enough time to think it out.”
One factor that wasn’t given enough attention, said Hohn, was the course length, which was supposed to be the equivalent of six months of regular class time in order to meet minimum federal standards and thus qualify for the government-guaranteed student loan program. The federal audit report, released last month, maintains that the Compulit course was too short.
Hohn said management at NTS was more concerned with selling the course than with its quality. “I never heard anyone doubting in any way, shape or form that the course might not have the 600 hours necessary to qualify” for the government loan program, Hohn said.
NTS initially hired a San Diego marketing firm, Comtec, to sell the Compulit course. Weiss and his wife, Karen Allstead, who are former Comtec sales representatives, said the marketing firm pressured salespeople to mislead prospective students about the types of jobs they would qualify for once they completed the course and the amount of time they would have to repay loans.
Also, said Weiss, salespeople were told to enroll people who didn’t qualify for the course. “We were falsifying the fact that they were high school graduates. Whether they were or not, we were told to put it on the paper that they were,” he said.
Scott Boehm, a lawyer for Comtec in Phoenix, declined comment on the former employees’ allegations, and Comtec executives could not be reached.
After Comtec began selling Compulit in the fall of 1987, said Hohn, enrollment in the home-study division jumped from between 200 and 300 new students a month to as many as 3,000 a month. NTS severed its contract with Comtec in February, 1988. The companies have since sued each other, each alleging the other broke their contract.
After Comtec was released, NTS hired former Comtec salespeople, including Weiss and Allstead, to continue marketing Compulit. Weiss said he believes NTS’ management didn’t intend to defraud students the way he alleges that Comtec did. “Their thing was more mismanagement than purely just trying to go out and break the rules,” he said.
Problems continued nevertheless, Weiss said. Financial-aid paper work and student tests were repeatedly lost. “We went through filing cabinets looking for people. They got totally lost from the system,” he said.
Marvin Petersen, a Homedale, Idaho, mechanical designer, was one of those students. Petersen, who signed up for Compulit in July, 1988, said he had completed his loan paper work and the first half of the course, which involved studying a book and taking written tests, when he was told he had been canceled.
No explanation was given. He had not been sent lessons for the second part of the course, which covered hands-on computer training, and he had not received the computer promised as part of the cost of the course.
But once he’d been canceled, Petersen was required to start repaying his student loan. He continued to call the school to find out what happened, “but I got absolutely nothing. They didn’t even return my calls,” he said.
It was only when he threatened to contact the Idaho attorney general, Petersen said, that NTS wrote to say he would be reinstated and his computer would be shipped immediately. He finally received the computer nearly a year after he had registered for the course.
Other former students complain that they were misled into thinking Compulit would prepare them for computer jobs. But, said Gloria Houtz of Ft. Hall, Idaho, who took the course last year and now attends the University of Idaho, “someone could complete the course without even knowing how to operate a computer.”