For years now, for-profit colleges have come under fire from federal and state lawmakers and investigators over allegedly misleading and deceiving prospective students into enrolling. Today, the state of California announced a $168.5 million settlement to resolve similar allegations, not with an institution of higher education, but with a for-profit online grade-school operator called K12. 

California Attorney General Kamala Harris’s office announced the settlement [PDF] with K12, which also manages 14 affiliated nonprofit schools known as the California Virtual Academies (CAVA Schools), to resolve claims that the company violated California false claims, false advertising, and unfair competition laws.

According to the AG’s office, the settlement — the first to be reached by the state Department of Justice’s Bureau of Children’s Justice and False Claims Unit — requires Virginia-based K12 to provide $160 million in debt relief to the non-profit schools it manages and pay $8.5 million to the state. (NOTE: K12 claims the AG’s office is mischaracterizing the size of the settlement; see update below.)

The settlement resolves an investigation that claims to have found the “virtual” academies operated by K12 in California used deceptive advertising to mislead parents about students’ academic progress, parent satisfaction, their graduates’ eligibility for University of California and California State University admission, class sizes, the individualized and flexible nature of their instruction, hidden costs, and the quality of the materials provided to students.

In some cases, the AG’s office alleged that K12 claimed that parent satisfaction rates were 94% or 95%, however the ratings were allegedly misleading because they reflected survey questions that did not involved parent satisfaction.

The company’s claims that students would receive a flexible and individualized curriculum were also misstated, according to the AG’s office, which says it found learning plans were not individualized in a meaningful way.

While K12 advertised that students would receive an education at no cost, the investigation claimed to find that students and parents incur costs for a number of items deemed necessary for them to access the educational program.

As for instructional materials provided to students, K12 advertised that it would provide “loaner computers” with certain programs. However, according to the settlement, these computers were “deficient and prevent students from gaining meaningful access to K12’s educational program.”

The AG’s office also alleged that K12 and its affiliated schools submitted inflated student attendance numbers and collected more in state funding from the California Department of Education that it was entitled to.

A whistleblower told the AG’s office that K12 allegedly counted logging on for as little as one minute as a full day of attendance. This, they allege, wasted taxpayer money and harmed students by depriving them of a full day of high-quality academic instruction.

Additionally, the AG’s office alleged that K12 and its employees persuaded nonprofit online charter schools to enter into unfavorable contracts that put them deep in a financial hole.

These agreements, the investigation alleged, show that the online schools are not really independent from K12. Instead, records suggest that K12 operated the schools to make money by taking advantage of laws governing charter schools and nonprofit organizations.

“All children deserve, and are entitled under the law, to an equal education,” Attorney General Harris said in a statement. “K12 and its schools misled parents and the State of California by claiming taxpayer dollars for questionable student attendance, misstating student success and parent satisfaction, and loading nonprofit charities with debt.”

In addition to debt relief and payments to the state, K12 has agreed to implement significant reforms of its contracts with the CAVA Schools, undergo independent reviews of its services for students with disabilities, ensure accuracy of all advertisements, provide teachers with sufficient information and training to prevent improper claiming of attendance dollars, and change policies and practices to prevent the kinds of conduct that led to this investigation and agreement.

UPDATE:
In a statement posted on the K12 website, the company — which admitted no liability or wrongdoing of any sort as part of its settlement — takes exception to the price tag touted by Harris’s office.

“The Attorney General’s claim of $168.5 million in today’s announcement is flat wrong,” said K12 CEO Stuart Udell in the statement. “Despite our full cooperation throughout the process, the Office of the Attorney General grossly mischaracterized the value of the settlement just as it did with regard to the issues it investigated. There is no ‘debt relief’ to the CAVA schools. The balance budget credits essentially act as subsidies to protect the CAVA schools, its students and teachers against financial uncertainties. CAVA schools have not paid that money to K12 and K12 never expected to receive it given California’s funding environment.”

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