Career Education Corporation (CEC) was founded in 1994, by John M. Larson (Jack) with a reported mission to acquire possession of established private colleges and streamline their profitability. Reported revenue for their first fiscal year was $7.5mil. The company went public in 1997 and increased profits to more than $45 million within 3 years​. By the end of 1998, CEC had acquired 21 schools, who had a combined population of more than 16,000 students. The combined revenue from these newly acquired institutions nearly tripled in one year, reaching $144.2 million, with a net income of $4.3 million – almost 20 times the amount from four years earlier when CEC was first established. Shortly thereafter, CEC formed a Professional Education Loan 1 program in partnership with the Student Loan Marketing Association, or Sallie Mae.

In 1999, the same year the Glass-Steagall Act was completely repealed, CEC purchased Brooks Institute of Photography (BIP) for $6.6 million. Brooks was previously a family owned and operated private school that was known worldwide for the caliber of its education within both the professional photography and film industries. Prior to selling in 1999, Brooks Institute of Photography had a student body population of roughly 300, with tuition ranging from $12,000 – $15,000 per academic year.

According to CECs 2001 shareholders annual report a shift in business modalities was vocalized that moving forward, “During 2002, we expect to generate more revenue from brick-and mortar campuses compared to any group in the private, for-profit postsecondary education industry.” There were approximately 41,100 students spread out between 42 different CEC owned 2 schools, with an annual net revenue of $529.2 Million and a net income of $38.4 million – putting CEC in the position of being the second largest for-profit postsecondary education company in the United States, just behind Apollo Group . Share values 3 skyrocketed. Keeping shareholders happy meant increasing enrollment, maintaining student population levels, while lowering operational costs. This translated into a decline in the quality of education promised and/or provided, and a decrease in facilities and equipment offered within those institutions; all the while CEC increased its shareholder stock value on the NASDAQ.

In the years that followed, CEC created an aggressive recruiting program within their schools installing policies with the intention of increasing the student body population throughout their portfolio of schools. According to testimony found in court documents, examples of these new policies included but are not limited to; setting extreme quotas for admissions recruiters requiring them to make 125 calls a day, and a minimum of 10 enrollments per month. Using car salesmen and telemarketers’ sales tactics, recruiters were pressured to enroll a new student in under 14 days after their initial inquiry. This behavior was not limited to just CEC-owned Brooks Institute, but has been a repeated accusation(s) from the many CEC owned education institutions. Numerous Brooks Borrowers and students have reported being enticed to enroll based on the promise of ongoing and catered assistance that guaranteed job placement after graduation through the schools Career Services department. Recruiters made exaggerated claims that graduates would receive starting incomes that ranged from $60k – $150k’ annually in their field-of-study upon leaving the 4 program, which would allow them to pay off their loans within a year or two.

It has also been reported by Brooks Borrowers that CEC made numerous misleading statements to them regarding graduation percentage rates, accreditation status, and the transferability of academic credits from Brooks Institute into other colleges. By fabricating an illusion of what a student’s life would become by attending Brooks Institute, CEC routinely enrolled anyone who could fill out a Free Application for Federal Student Aid (FAFSA), and sign their name on a student loan contract. Administrators 5 were pressured to ‘go soft’ on poorer performing students to keep them enrolled.

Under the 1992 amendment to Title IV of the Higher Education Act of 1965, an attempt was made to curb high loan default rates. The Department of Education began banning schools from participating in federal student-loan programs if their default rates exceeded the statutory threshold of 25 percent for 3 consecutive years. The default rate is only calculated for 36 months after the student is scheduled to start repaying (or has graduated). However, both schools and lenders were able to skirt legislation by allowing students to put their loans into forbearance or deferment long enough, as a means to pass the 36 month stopgap, excluding them from a proper default rate measurement. This allowed education corporations to continue excessively enrolling students with Title IV funding. Proprietary schools historically have larger default rates overall, and are not held accountable at an equal rate. This cycle creates an additional burden for students, as their loans, while in forbearance or deferment, compound 7 interest daily, thus increasing their loan amounts even further.

The DoEDs ability to enforce accurate self-reporting from schools relies on whistleblowers and private attorneys, and has proven incapable of enforcing laws to known chronic offenders. During the reauthorization of the Higher Education Act in 1996 – the 85/15
rule was enacted allowing 90% of proprietary schools funding to come from the Title IV program.