Penn Foster has faced several lawsuits and regulatory actions over the past decade, most notably a 2015 Oregon Attorney General settlement over misleading accreditation claims, a federal investigation into a military tuition markup scheme, and a short-lived 2023 class-action lawsuit under the Telephone Consumer Protection Act. Its former parent company, Education Holdings 1 Inc. (previously The Princeton Review), also settled a federal fraud case and filed for bankruptcy in 2012 and 2013. No single case defines the Penn Foster lawsuit history, but the pattern tells you what to watch for before enrolling.
The Oregon Attorney General Settlement
The most significant legal action against Penn Foster came out of Oregon. In August 2013, Malcolm Strand, a 42-year-old Portland facility supervisor, filed a consumer complaint with the Oregon Department of Justice after trying to transfer his Penn Foster College credits to Portland Community College’s Sylvania campus. A guidance counselor told him the credits were not accepted because Penn Foster lacked regional accreditation. Penn Foster’s website at the time said the school was regionally accredited and that its credits were transferable.1The Oregonian. Penn Foster College Must Pay Millions
Strand stopped paying tuition after learning his credits would not transfer, and Penn Foster sent his account to collections.1The Oregonian. Penn Foster College Must Pay Millions The state investigation that followed concluded that the school had engaged in misleading marketing.
In May 2015, Penn Foster entered into a settlement filed in Marion County Circuit Court. The financial terms totaled more than $73,000:
- $1,900 refunded to Strand directly.
- $22,000 to reimburse the Oregon Justice Department’s investigation costs.
- Up to $50,000 in mandatory donations to nonprofit or government organizations providing educational access to disadvantaged Oregon youth.1The Oregonian. Penn Foster College Must Pay Millions
Beyond the money, the settlement required Penn Foster to stop misrepresenting its accreditation, add a disclaimer to its website stating that “no form of accreditation guarantees that any learning institution will accept credits from any school as transfer credits,” and stop advertising that students could graduate “debt free.”2Truth in Advertising. Penn Foster College The agreement also obligated the school to provide restitution to any other Oregon consumers with legitimate complaints about accreditation or credit transfers. Future violations could trigger contempt-of-court proceedings and penalties of up to $25,000 per violation.1The Oregonian. Penn Foster College Must Pay Millions
Penn Foster denied wrongdoing but agreed to the terms. It later updated its website to clarify that “credit may not transfer in all cases” and that transfer decisions rest with the receiving institution.3Inside Higher Ed. For-Profit Ordered to Pay Refund, Claim Credit
What the Accreditation Issue Means for Students
The Oregon case turned on a distinction that still matters for anyone enrolling today. Penn Foster College is accredited by the Distance Education Accrediting Commission (DEAC), a nationally recognized agency listed by the U.S. Department of Education.4Penn Foster. Consumer Information – College Penn Foster Career School and Penn Foster High School also hold accreditation from the Middle States Association’s Commission on Secondary Schools, a regional accreditor.5Penn Foster Group. Accreditation
Many traditional colleges and universities accept transfer credits only from regionally accredited institutions. A nationally accredited degree can leave students unable to continue their education elsewhere, which is the gap that drove the Oregon complaint. If credit transferability matters to you, confirm with the specific school you plan to attend next before enrolling. The DEAC disclaimer now carried on Penn Foster’s site exists because of this case.5Penn Foster Group. Accreditation
The Military Tuition Markup Scheme
Penn Foster’s name also surfaced in a federal matter involving military tuition assistance funds. In February 2014, CBS News reported that a company called Ed4Mil (Education for Military) had allegedly acted as a middleman funneling military students into Penn Foster courses at inflated prices. Ed4Mil used an accredited institution, Caldwell College, to access military tuition assistance money. Caldwell reportedly kept about 10 percent of the funds and passed the rest to Ed4Mil, which paid Penn Foster for the actual coursework and pocketed the difference.6CBS News. Alleged Scheme Targets US Military Students’ Free Tuition Assistance
The markups were steep. A gunsmithing course cost $708 for a civilian Penn Foster student but $4,331 when billed through Ed4Mil to the military. Recruiters allegedly told service members the program was “free” and offered incentives like laptops and Best Buy gift cards. Former Ed4Mil recruiter Adam Boyce filed a whistleblower lawsuit against Ed4Mil and Caldwell College.6CBS News. Alleged Scheme Targets US Military Students’ Free Tuition Assistance
Penn Foster severed its relationship with Ed4Mil, and a spokesperson told CBS News the school had no role in marking up prices.6CBS News. Alleged Scheme Targets US Military Students’ Free Tuition Assistance Caldwell College also said it no longer had a relationship with the provider. The Pentagon later implemented new rules requiring schools to confirm they follow procedures designed to protect military students and taxpayers.
Separately, the Department of Defense’s Postsecondary Education Complaint System Summary Report for fiscal year 2014 identified Penn Foster College as one of the institutions with the most service member complaints that year.7The Century Foundation. College Regulator Proves Asleep at the Wheel
Nipper v. Penn Foster (2023 TCPA Class Action)
In November 2023, Joseph Nipper filed a class-action lawsuit against Penn Foster in the U.S. District Court for the Eastern District of California, alleging violations of the Telephone Consumer Protection Act. The case, styled Nipper v. Penn Foster, LLC (1:23-cv-01655), involved claims related to restrictions on the use of telephone equipment.8PACER Monitor. Nipper v. Penn Foster, LLC
The lawsuit did not go far. Nipper filed a notice of voluntary dismissal on December 20, 2023, and the court closed the case the next day. No class was certified, and no settlement or judgment on the merits was recorded.8PACER Monitor. Nipper v. Penn Foster, LLC If you were hoping to join a payout from this case, there isn’t one.
The Parent Company Fraud Settlement and Bankruptcy
Some search results for “Penn Foster lawsuit” turn up a federal fraud case that was not actually about Penn Foster’s teaching. In 2009, The Princeton Review (later renamed Education Holdings 1 Inc.) acquired the Penn Foster brand.
In December 2012, the U.S. Attorney’s Office for the Southern District of New York announced that Education Holdings had agreed to pay up to $10 million to resolve allegations of a “phantom-student tutoring scandal.” Between 2006 and 2010, when the company operated as a Supplemental Educational Services provider for New York City public schools, managers allegedly fabricated student attendance records, forged student signatures, and billed the government for thousands of hours of tutoring that never happened. Supervisors were paid bonuses tied to attendance numbers, creating what prosecutors described as a “culture of fraud.”9U.S. Department of Justice. Princeton Review Settlement
The settlement called for an initial $200,000 payment, an additional $800,000 upon the sale of the company’s remaining business asset, and up to $9 million more depending on the final sale price. Education Holdings also accepted a three-year voluntary exclusion from federal procurement and non-procurement transactions.9U.S. Department of Justice. Princeton Review Settlement The conduct involved the company’s old Princeton Review tutoring operations, not Penn Foster’s distance-learning programs, though the financial fallout hit the entire corporate structure.
In January 2013, Education Holdings filed for Chapter 11 bankruptcy in Delaware, citing the combination of the fraud settlement and the debt it had taken on to buy Penn Foster.10Wall Street Journal. Education Holdings Files for Chapter 11 Bankruptcy The company reported assets and liabilities both in the $100 million to $500 million range.11Higher Ed Dive. Education Holdings, Formerly Princeton Review, Files for Bankruptcy A Delaware bankruptcy judge approved the company’s prepackaged exit plan on March 7, 2013, with a $43.5 million exit facility.12Law360. Ex-Princeton Review Owner Wins OK for Ch. 11 Exit Plan
If You Have a Complaint Against Penn Foster
The Oregon settlement specifically obligated Penn Foster to provide restitution to other Oregon consumers who came forward with legitimate complaints about accreditation or credit transfers.1The Oregonian. Penn Foster College Must Pay Millions If you are an Oregon resident with that kind of complaint, the state attorney general’s consumer protection division is the agency that handled the original case. Service members with grievances can use the Department of Defense’s Postsecondary Education Complaint System. Students outside those categories often raise issues through the Better Business Bureau, with their state attorney general, or with the school’s accreditor, the DEAC.