Massachusetts Attorney General Martha Coakley has broadened her investigation into recruiting and lending practices at for-profit colleges and trade schools, which critics say leave students with mountains of student loan debt, but often do not lead to decent-paying jobs.
Coakley, who began examining a handful of schools two years ago, said she is now looking into whether more than a dozen institutions that do business in Massachusetts misled prospective students about the cost of course work, the odds they would graduate, or the likelihood they would find employment in their field of study.
“The more we look, the more we see it as a real problem,’’ said Coakley, comparing it to the increase in subprime mortgages during the housing boom, when some lenders encouraged home buyers to take out loans they could not afford or did not understand. “This has potential to be a predatory business.’’
There are about 3,000 for-profit schools nationwide, including at least 136 in Massachusetts.
Other states have launched their own investigations into for-profit educators. Kentucky Attorney General Jack Conway, for instance, has sued four schools and is leading a group of 30 state attorneys general looking into the industry.
“It’s appropriate and encouraging to see the state attorneys general are investigating the evidence of widespread fraud and abuse,’’ said Pauline Abernathy, vice president of the Institute for College Access & Success, an advocacy group in Oakland, Calif., that has been critical of for-profit colleges.
Many government officials say the issue is particularly important because some for-profit schools rely on federal student aid for more than 90 percent of their funding — leaving taxpayers on the hook if students cannot pay back their loans. In addition, for-profit schools typically charge more than comparable public and nonprofit private schools, so graduates often wind up much deeper in debt.
But industry executives argue the sector fills a critical need, providing practical career training for several million US students a year — including 30,000 in Massachusetts — for jobs in everything from nursing to the culinary arts. Moreover, the schools contend, most students wind up finding jobs and do pay off their loans.
“We have a great record of accomplishment,’’ said Steve Gunderson, chief executive of the Association of Private Sector Colleges and Universities, a trade group representing many for-profit schools, in a statement. “Our hope is that the AG’s investigation looks into broad reform in higher education, not simply target one faction of it.’’
Coakley named only one of the schools she is investigating, American Career Institute, which abruptly shut down its eight locations in Massachusetts and Maryland last month, leaving students stunned and uncertain about what to do next.
The state, which began examining the American Career Institute late last year, has received more than 300 complaints about the school. State officials said they are trying to help former students, many of whom are responsible for thousands of dollars in student loans for partially completed courses.
The entire Massachusetts congressional delegation last month asked the US Department of Education and Department of Veterans affairs to help the 1,400 affected students, and asked the school’s accreditor whether there were any signs it was in financial trouble.
In addition, the parent company of New England Institute of Art in Brookline, Education Management Corp. of Pittsburgh, said Tuesday that it also has received a demand from the state for information regarding the school’s marketing, recruitment, and financing practices.
The school said it plans to cooperate with the investigation.
New England Institute of Art’s parent company also faces a whistle-blower suit involving the US Justice Department and 11 states, including Massachusetts, alleging the firm illegally gave recruiters bonuses for signing up students at the art institute and other schools. The company said the case is without merit.
The Globe previously reported that three other educational companies said they had received letters requesting information from Coakley’s office about their operations in Massachusetts: the University of Phoenix, owned by Apollo Group in Phoenix; the Everest Institute campuses in Brighton and Chelsea, which are part of Corinthian Colleges Inc. of Santa Ana, Calif.; and Kaplan Career Institute, owned by the Washington Post Co..
Kaplan closed its Kenmore Square campus in Boston in December and said it will stop offering classes in Charlestown later this year, due to lack of demand. The school does not have any other campuses in Massachusetts.
Coakley said it is too early to say whether she will sue any of the schools for fraud or other wrongdoing. But she is skeptical of the industry’s business practices.
“When you look closely at the curriculum and the expenses involved, it’s probably not a good value,’’ Coakley said.