Trade School Operator Files for Protection : Bankruptcy: United Education & Software linked the move to its fight about federal loans for one of its schools.


United Education & Software, the troubled Encino-based trade school operator that has been under fire from federal and state agencies, said it has filed for Chapter 11 bankruptcy protection with the federal bankruptcy court in Los Angeles.

Aaron Cohen, United Education's president and chief executive, blamed the company's need to seek bankruptcy protection in part on the California Student Aid Commission, the state agency that administers the federal student loan guarantee program. United Education has been locked in a dispute with the agency, which contends that one of the company's schools should be disqualified from the federal loan program.

United Education said that as part of a restructuring plan it would sell or close 12 of its 26 vocational schools, or merge the schools with the company's remaining operations. A company spokesman said he did not know when the restructuring plan would be filed or which schools would be put up for sale.

"We have to analyze which schools will be able to return to profitability," he said. "We can't keep them all. We don't have the money."

United Education said in the bankruptcy documents, which were filed late Monday, that its assets totaled $71.9 million as of Sept. 30, and that liabilities totaled $51.7 million, including $21 million in unsecured debt. The company, which was profitable as recently as last year, lost $5 million in the fiscal second quarter that ended July 31, on revenues of $17.5 million.

The trade school operator's stock, which traded as high as $16.375 in 1988, closed Tuesday at 18.75 cents.

United Education was the subject of a scathing audit report released by the U.S. Department of Education in September. The report cited widespread problems at one of United Education's institutions, National Technical Schools, a Los Angeles-based computer home-study program. The report said National Technical Schools' courses were too short to meet minimum federal standards, students were admitted who were academically unprepared and costs were misrepresented.

In response to the federal audit, Atty. Gen. John K. Van de Kamp last month sued United Education for $24 million. The civil complaint charges National Technical Schools with misleading students, failing to refund loan money after students dropped out, misrepresenting its actual dropout rate of more than 90% and numerous other offenses.

United Education has denied the charges and has also filed a $10-million lawsuit against four officials of the California Student Aid Commission. In the suit, United Education charged the officials with making false and misleading statements to bank executives to induce them to stop making loans to students of National Technical Schools.

The student aid commission said in October that it would stop backing loans taken out by students of National Technical Schools. But a federal court in Los Angeles ruled last month that the agency cannot take that action pending a hearing in January.

Nonetheless, the home-study school said last month that 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 a statement issued by the company after the bankruptcy filing, Cohen said, "Recent events have led us to the inescapable conclusion that we must take this immediate and strong action to enable us to compete in the future in a greatly changed environment.

"We believe we will be successful in competing by downsizing our operations and focusing on the company's key assets," he said.

United Education also remains embroiled in problems stemming from a foul-up last year at its former student loan processing subsidiary, which it has since sold. A federal 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.

Bank of America has said it and several other banks that backed student loans that were serviced by the loan processing unit 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. The banks have since sued Bank of America, which was the trustee for the loans, and United Education has been named as a third-party defendant.

The trade school operator has also been named as a defendant in several shareholder lawsuits, which charge company officials with making false statements to inflate the company's stock.

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