A whistle-blower suit relating to the program was unsealed on Friday by the Federal District Court in Philadelphia. The lawsuit, filed in 2007 by David Goodstein, the former director of education at Kaplan’s CHI Institute, charged that Kaplan continued to enroll students in the Broomall surgical technology program even though it did not have enough of the clinical placements the students needed to graduate.
As a result, the lawsuit charged, some students were sent home on “leaves of absence” after they finished the classroom portion of the program to wait for a placement that in many cases never materialized.
Kaplan, in settling the case, admitted no wrongdoing.
The settlement includes nearly $500,000 to be paid on behalf of 43 students who had taken out student loans for the program but were not able to graduate because the school, one of Kaplan’s for-profit campuses, had no placement for them.
“The money will go to the banks, to pay off their loans, so the students can get on with their lives,” said Michael J. Salmanson, the lawyer who handled the case.
One of those whose loans will be paid off is Rebecca Masci, a single mother of five, who took out loans, got her parents to baby-sit and, for three terms, excelled in her classroom work. But she was unable to graduate because the school never provided the necessary hands-on experience in an operating room.
Mr. Salmanson said other students whose loans will be paid off may not have known of the lawsuit — and may not yet know about the settlement.
Mr. Salmanson and Mr. Goodstein will receive $225,000 of the settlement money.
Ron Iori, a spokesman for Kaplan, said in a statement the settlement resolved not only the whistle-blower case but also a United States attorney’s inquiry into the surgical technology program, which stopped enrolling students in early 2004, and a program review by the Education Department.
Mr. Goodstein said he was especially pleased that the settlement would help students who were left with debts and no possibility of a surgery-tech job because of the program’s failure to provide a placement.
“I was very concerned that the students in the program, many of whom were economically at risk, were exposed to even greater potential economic risk in an attempt to better themselves,” he said in a statement Friday
The Broomall litigation was one of several long-pending whistle-blower suits charging that Kaplan had defrauded the federal government in an effort to gain federal student aid money.
Another case, involving Charles Jajdelski, a former employee, was dismissed July 7 by a federal judge in Nevada, who said Mr. Jajdelski had not provided enough specifics to support his claims that Kaplan had filed fraudulent student-aid requests.
Other whistle-blower suits against Kaplan have been consolidated and are pending in multidistrict litigation in Florida. On Thursday, one of the Florida plaintiffs, Ben Wilcox — the former dean of law and legal studies at Kaplan University — was sentenced to a year and a day in prison for sending threatening and harassing messages to Kaplan.
Over the last year, Kaplan and the nation’s other for-profit colleges have come under increasing scrutiny by both the Department of Education and Congress for their recruiting practices and high loan default rates.
In June, the Department of Education issued final regulations, to go into effect next July, requiring career college programs to better prepare students for “gainful employment” or risk losing access to the federal student aid that, on average, provides more than 85 percent of their revenues.
The for-profit colleges lobbied against the rules, which were eased before being issued in their final form.
On Wednesday, the Association of Private-Sector Colleges and Universities, a group representing the for-profit schools, filed suit in Washington to block the enforcement of the regulations, charging that they go beyond the Education Department’s regulatory authority and conflict with Congressional intent.
“The department has created a situation whereby institutions will be forced to narrow enrollment policies and deny admission to students who are at risk of failing to meet the department’s arbitrary debt-to-income and repayment metrics,” a statement from the group said.
A spokesman for the Education Department said the regulations “offer students and taxpayers protection they deserve” and rest on a sound legal foundation.
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