Lawsuit Against 'Trump University' Puts For-Profit Schools in the Cross Hairs Again

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FILE- In this May 23, 2005 file photo, real estate mogul and Reality TV star Donald Trump, left, listens as Michael Sexton introduces him at a news conference in New York where he announced the establishment of Trump University. New York Attorney General Eric Schneiderman is suing Trump for $40 million, saying that ?Trump University? didn?t deliver on its advertised promise to make students rich, but instead steered them into expensive yet mostly useless seminars. (AP Photo/Bebeto Matthews, File)
Bebeto Matthews, AP file
Donald Trump is no amateur when it comes to dispensing tough criticism, but on Saturday, he was on the receiving end of a hard hit when the New York State attorney general's office filed a lawsuit against his eponymous real estate school, The Trump Entrepreneur Initiative -- formerly known as Trump University. As the Donald faces civil litigation and demands for at least $40 million in restitution, the legal actions points another harsh spotlight on the for-profit education industry.

For-profit schools have been under attack for years, and with good reason. As DailyFinance's Brian Stoffel recently noted, the industry was dealt a crushing blow in 2010, when the General Accounting Office released a report titled "For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices." To put it mildly, the GAO's findings have been devastating for the industry: Since 2010, enrollments at The University of Phoenix, the top for-profit institution, have fallen by 37 percent. In March, Apollo Group (APOL), the company that runs The University of Phoenix, announced that its quarterly earnings were down 79 percent from a year earlier. And since early 2010, Apollo stock has shed more than two-thirds of its value.

But while most for-profit schools have watched their credibility crumble, Trump University has been able to trade the name on its famous founder -- so far.
Admittedly, it had to officially rename itself The Trump Entrepreneur Initiative in 2010 after the New York State department of education announced that the institute's use of the term "university" was "misleading" and possibly illegal. But, even with its new name, Trump's school made the same promise: that it would teach students "a systematic method for investing in real estate."

According to the NY attorney general's office, however, the entire program amounted to a very expensive "bait-and-switch" that charged between $1,495 and $35,000 for ineffective courses and programs that were neither designed nor overseen by Trump. Trump's lawyers have claimed that the lawsuit was politically motivated, and that 98 percent of the program's students wrote positive reviews of it. The Better Business Bureau is less impressed: It gives Trump's school a B- grade, noting that it had 15 formal complaints lodged against it, two of which have yet to be resolved. (Admittedly, that's up from the D- it reportedly earned back in 2010.)

The attack on the school that Trump built comes at an interesting time: On Friday, President Obama noted that,"I'm not against for-profit institutions, generally," before pointing out that many of the institutions "are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates."

The president pointed out that his proposed college ratings, which are set to launch in 2015, could cut out a lot of the guesswork associated with for-profit schools. In the meantime, however, DailyFinance's Brian Stoffel offers a guide to help you choose a good for-profit institution -- as well as ratings of some of the top schools.

Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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