The U.S. Department of Education pulled Marinello Schools of Beauty’s federal funding and is denying recertification for five Marinello locations covering 23 campuses in five cities and enrolling about 2,100 active students (Las Vegas, Los Angeles, Burbank, Moreno Valley, and Sacramento campuses). All other campuses were ordered to cease enrollment by the California Bureau for Private Post-Secondary Education.

Marinello received over $87 million in federal funding for the 2014-2015 award year, and the DOE believes that a significant portion of that money was obtained through the submission of fabricated high school diplomas.

Yet, this isn’t the first time Marinello has been in the news for their business practices. In May of 2014, Marinello closed their Cathedral City campus, giving students only seven days of notice, charging one cosmetology student $3,000 and refusing to release her transcripts when she couldn’t transfer to another one of their locations due to lack of transportation. They only agreed to drop the charge and release the student’s documentation after Tom Tucker from CBS Local 2 contacted them.

“They told me that I could trust them, and they completely abused that trust.”

That student, Leonora Lettman, wasn’t the only person whose trust Marinello abused. In addition to being accused of falsifying federal aid records and engaging in other acts of misrepresentation, school administrators are accused of cheating students out of money by charging them for excessive overtime and limiting the amount of federal aid students could receive (even when they were eligible for more funding), forcing them to make high monthly payments themselves.

A spokesperson for Marinello replied: “Despite Marinello Schools of Beauty’s long history of compliance with regulatory requirements, for two months the Department of Education has delayed funding to our students without specifying allegations of wrongdoing or allowing us to respond. While we intend to appeal this decision and while Marinello believes it has done nothing wrong and will defend itself vigorously, without the federal funds our students deserve, our operations are at risk.”

I find this statement absurd. The DOE placed all Marinello schools on Heightened Cash Monitoring 2, a step taken by the Department’s Office of Federal Aid to provide additional oversight of institutions for a number of financial or federal compliance issues, which means that the OFA had concerns prior to this, as far back as March 1st of 2015. (The OFA’s Lists of Insitutions on HCM only goes as far back as March of last year, so there’s a  decent possibility that Marinello was on that list prior to that time.)

Was it necessary for the DOE to specify the allegations? The OFA site, in my opinion, makes it pretty clear that being placed on HCM2 means that the OFA thinks you’re up to some shady shit. (Plus, you know, the fact that the DOE was actively investigating the school, interviewing students and staff, and reviewing their practices.)

When you read the rejection letter from the DOE, Marinello’s statement looks even more ridiculous. It reads:

In reaching a decision on Marinello’s recertification application, the Department has reviewed all of the documentation it has obtained during its review of the institution, including documentation acquired on site in October 2015, and information obtained during student and employee interviews. As outlined below, the Department has concluded that Marinello has failed to adhere to a fiduciary standard of conduct, failed to comply with critical Title IV program requirements, failed to meet Title IV standards of administrative capability, and made numerous misrepresentations to students. Marinello’s Schools of Beauty misconduct in its administration of the Title IV programs will not be tolerated, and therefore, its recertification application is denied.

MARINELLO’S MISCONDUCT CONSTITUTES A SEVERE BREACH OF ITS FIDUCIARY DUTY TO THE DEPARTMENT AND UNDERSCORES ITS INABILITY TO MEET TITLE IV ADMINISTRATIVE CAPABILITY STANDARDS

The ten page letter goes on to list the specific incidents of deception perpetrated by Marinello Schools:

• The Department uncovered a scheme created by Marinello to fill the void in student enrollment left when the ATB alternative for student basis of admission was eliminated. As presented to the Department, Marinello partnered with Parkridge Private School (Parkridge) in Long Beach, California, to offer a high school completion program to students wishing to enroll at the institution. Marinello heavily advertised the Parkridge program in its marketing materials and pushed students inquiring about its programs to sign up for the Parkridge program through them. When questioned about the program during the review, Marinello officials assured the Department that the Parkridge program was legitimate and independent from the institution.

“The representations made by both Marinello and Parkridge officials to the Department with regard to the administration of the Parkridge program at the institution were incomplete and, in some cases, patently false.”

• Although the information provided by Parkridge to the Department stated that all tests related to the adult diploma program are proctored…this was not the case. Virtually all of the students interviewed stated that no Marinello staff stayed in the room while they took the tests. Even if all of the tests had been proctored, the lack of independence in evaluating the results would lead the Department to question the validity of the test results.
• Some students stated that they were permitted to use the workbooks and packets while taking the tests or were allowed to use their phones to look up answers, and other students were provided answers by Marinello staff to questions they didn’t know… Students who failed the tests would keep repeating the same test until they passed.
• Marinello held the diplomas for many of the students until after they completed a set portion of the institution’s program of study. In fact, the Department interviewed students who withdrew from Marinello and have still not received their Parkridge diplomas. Some students were actually told that their Parkridge diplomas would be invalidated if they withdrew from Marinello.

“Parkridge was merely used as a front for Marinello in an attempt to legitimize its activities and hide its illegal actions.”

• The Department has concluded that the Parkridge program, as administered by Marinello, does not provide students with a valid high school diploma which was required in order for these students to be eligible for Title IV aid. Consequently, those students were ineligible to receive Title IV funds.

“Marinello illegally disbursed funds to 1,182 students who did not possess a valid high school diploma.”

• Marinello’s actions caused undue harm to its students. These students, who trusted the institution, are now faced with the fact that the high school diplomas they were given are worthless. As a result, the students’ ability to continue postsecondary education elsewhere are limited or foreclosed as they do not meet the threshold eligibility requirement to embark upon higher education, much less obtain the funding to pay for it. Marinello’s actions underscore the need for this denial.

“Marinello Callously Disregarded Students’ Financial Need.”

• Schools do not have the authority to limit the amount of Title IV aid an individual student may receive on a categorical basis. Further, institutions may not limit students’ Direct Loan borrowing to the amounts needed to cover only institutional costs or to a percentage of direct or indirect costs. The basis for any reduction in a student’s award must be provided to the student and documented in the student’s file. An institution is prohibited from misrepresenting the nature of its financial charges to its students.

“As a fiduciary, an institution must not take action that will cause undue hardship to its students.”

• Marinello failed to provide a large percentage of its students the full amount of Direct Loan funds the students were eligible to receive. There is no documentation in the student files providing a justification for the limitation.
• Marinello told students that their financial aid did not cover their tuition and fees and that they would need to make monthly payments. Students were threatened with suspension if the monthly payments were not made.
• In the 95 sample files reviewed, the Department discovered under awards for Students 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 27, 28, 29, 30, 32, 33, 34, 35, 36, 37, 38, 39, 42, 43, 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 1663, 64, 65, 66, 67, 68, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, and 94.

“This represents 92% of the sample population.”

• Marinello’s egregious conduct is magnified by the fact that staff routinely lied to students about their rights as recipients of Title IV funds. Marinello’s misconduct cannot be tolerated.
• Marinello imposed excessive charges for make-up hours on many of its students.
• Students reported that Marinello never provided them with a full accounting breakdown of the overtime charges by hour, and in most cases students felt that they had not missed as many hours as Marinello claimed they had based on the amount of the charges.

“In the sample files reviewed, the overtime charges were as high as $6900.”

• Students 1, 13, 14, 16, 18, 19, 23, 31, 50, 67, 71, 74, 88, 91, 92, and 93 were all assessed excessive overtime charges. (Side note: That’s 16.84% of the sample.)

“Department reviewers discovered that Marinello misled students regarding key elements of their educational programs and financial charges.”

• When students enrolled, Marinello staff promised the students they would receive an exceptional education taught by quality staff. Students were promised in-depth training in all areas of cosmetology, nails, and barbering. The training was to include both theory and hands on work in the clinic; however, students repeatedly informed Department staff that they did not receive the training in all functional areas needed to obtain jobs in the field. 
• Students attending Marinello were assessed between $2500 and $2750 for books and supplies. Despite this fact, students had to spend hundreds of dollars to purchase supplies needed to learn because the institution failed to provide required items.

Marinello likes to lean on their “long history of compliance with regulatory requirements,” yet if they were really aware of those regulatory requirements, the DOE wouldn’t have found any of this evidence, because it wouldn’t have existed.

Does any of this come as a surprise to any of you? Because it doesn’t for me. The issues at Marinello aren’t unique. Beauty schools across the country often fail to prepare their students adequately for their careers, churning out “graduates” who know little more than what’s required to pass their state board examinations. These graduates require extensive hands-on training by their employers, and many spend thousands on continuing education to fill the gaps left by the schools they attended.

Under Secretary Ted Mitchell stated: “Our students depend on higher education institutions to prepare them for careers through a quality education. Unfortunately, some schools violate their trust through deceptive marketing practices and defraud taxpayers by giving out student aid inappropriately. These unscrupulous institutions use questionable business practices or outright lie to both students and the federal government. In these cases we are taking aggressive action to protect students and taxpayers from further harm by these institutions.”

But are they?

If so, where’s the Federal Trade Commission? Where are the criminal charges for conspiracy to defraud the government? Should they fail to provide evidence refuting the DOE’s claims, someone at Marinello needs to be charged for these crimes against the government and their students. Period. This tradition of deception, theft, and fraud committed in post-secondary institutions has to end, and the only way to attempt accomplishing that is to send a strong message that it won’t be tolerated.

If you feel you’ve been defrauded by a beauty school, you may be able to have your debt forgiven.  The DOE has pointed out federal legislation that would forgive federal loans if, “the borrower may assert as a defense against repayment, an act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law.” [34 CFR 685.206(c)] If you’re successful, the school will be required to reimburse your loan payments and the federal government for the remaining balance. But do it fast. Finance guy Steve Rhoade predicts that door is about to slam shut. Follow the recommendations in his article if you’re seeking loan forgiveness.