Former students at one for-profit college allege that the school’s parent company, Laureate Education, committed fraud by deliberately allowing their college to fail and close down. 

Three students of the Santa Fe University of Art and Design recently sued Laureate, which operates 70 for-profit colleges in 25 countries, alleging that Laureate stripped away assets the school needed to operate properly, engineered a sale it knew would fail, and then continued to enroll students knowing the school would soon close.

The complaint [PDF], filed in late April in Santa Fe County Court, claims that when Santa Fe University of Art and Design failed to generate enough profit for Laureate Education, the company stripped away many of the elements it needed to operate and provide students with an education, engineered a sale that would fail, and enrolled students despite knowing the school would close.

Laureate purchased the school — formally known as College of Santa Fe — in 2009, after the institution announced it would close its doors. According to the lawsuit, the purchase came after Laureate had deliberated and eventually pulled out of a deal to buy the school in 2008.

This, the plaintiffs claim, was part of Laureate’s plan to transform the school into a profitable for-profit college like its co-owned property Walden University.

When the school failed to generate desired profits, Laureate “did not hesitate to place profits above students and promptly moved to eliminate SFUAD from its business portfolio.”

In doing so, the company removed SFUAD’s president in Feb. 2016 and replaced him with a Laureate executive, Maria Puzziferro, who was charged with divesting the school from the education company.

In May 2016, Laureate announced plans to sell SFUAD to Singapore-based Raffles Education Corp. Despite this, the company continued to aggressively recruit students, the complaint states, promising a high-quality education in a range of art and design programs with the assurance the school would not close.

As a result, a number of new freshman arrived on campus for the 2016-2017 school year.

However, that deal fell through and Laureate announced [PDF] in April that it would suspend enrollment of students for the fall 2017 semester and close its doors following the 2018 spring semester, the complaint states.

According to the lawsuit, Laureate knew well before the sale failed that it would close the school. Instead of preparing students for this, the company allegedly tried to maximize its profits, including charging them a $1,000 fee to buy new equipment and materials that would never actually be purchased.

“Laureate had no plan in place to provide for the students’ welfare when the sale fell through,” the lawsuit claims. “There was no ‘Plan B.’ And the school’s actions belie its words.”

In fact, instead of taking steps that would allow students to complete their degrees, Laureate “actively engaged in conduct that appears designed to sabotage the process,” according to the lawsuit.

While Laureate has offered students a $2,500 transfer grant, the plaintiffs claim this is “little more than an illusory buyout.” The grant won’t actually be paid directly to the students, but applied to balances owed to SFUAD or tuition at certain other schools.

But even if students wanted to transfer to a new school, the suit claims it is too late, as many colleges have already completed their enrollment window.

Additionally, the school has offered to allow seniors to continue at the campus through graduation in May 2018.

The suit claims, however, that these students face a bleak prospect, as the school has a “greatly diminished faculty, skeleton staff, limited classes, limited facilities, and a fractured social life.”

Students who choose to continue with the school will be charged full tuition, the lawsuit states.

In all, the plaintiffs seek an unspecified amount in compensation for damages, including economic and emotional distress.

[via Courthouse News]

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.