Another For-Profit College Chain Pays Millions and Agrees to Stop Abusing Students

Tuesday, November 17, 2015
(photo: Paul J. Gough, Pittsburgh Business Times)

“Companies cannot enrich their corporate coffers at the expense of students seeking a quality education, or on the backs of taxpayers who are funding our critical financial aid programs,” U.S. Attorney David J. Hickton of the Western District of Pennsylvania said in a press release Monday.

Of course, they can and do, which is why Hickton was making his statement. Another for-profit college chain had agreed to stop doing what it had been doing for years to tens of thousands of students.

Education Management Corporation (EDMC), the second-largest for-profit education company in the nation based on how many federal dollars they Hoover up, agreed to pay $95.5 million to settle allegations it violated several state and federal provisions of the False Claims Act by “operating essentially as a recruitment mill,” according to U.S. Attorney General Loretta E. Lynch.  Federal aid accounts for around 90% of the company's revenue.

“EDMC preyed on the hopes and dreams of New York students, and ripped off taxpayers, who backed federal student loans that were destined to fail,” New York Attorney General Eric Schneiderman said in a statement.

The U.S. Justice Department (DOJ) called it “historic” and a “landmark global settlement.” It requires the school to provide students with an easy-to-read one-page form with information about graduation rates and real financial costs. Students also get seven days to drop out with no charge after campus classes begin and 21 days to drop online classes under certain circumstances. 

Pittsburgh-based EDMC operates schools under four names: The Art Institutes, South University, Argosy University and Brown-Mackie College. California has 14 schools and was part of the settlement that resolves allegations in four separate lawsuits. The settlement ends investigations by 39 state attorneys general into the company's student recruiting practices.

The lawsuits' central allegation was that EDMC violated a 1992 prohibition against for-profit colleges paying incentive bonuses to recruiters to round up students. A whistleblower lawsuit was first brought in 2007 by Lynntoya Washington, a former assistant director of admissions at EDMC's Art Institute of Pittsburgh's Online Division, and joined by another whistleblower.

Their evidence showed the recruiters were not only paid by the student, they signed up students regardless of their suitability as long as they had, as one wag put it, “a pulse and a Pell.” Pell Grants are a prime source of federal aid.  For-profit secondary education chains like EDMC try to attract students who have access to federal and state loan and grant money, like military veterans and low-income minorities.

Because many of the students recruited shouldn't have been, the settlement includes forgiveness of student loans worth $102.8 million for people who started classes between 2006 and 2014 but didn't make it past the first 45 days of their first term. The Riverside Press-Enterprise reported that around 5,000 of the 80,000 former students eligible for that money were schooled in California.

California has eight Institutes of Art and six Argosy Universities, including Western State College of Law

EDMC, like a lot of other for-profit colleges, has come under increased scrutiny in recent years. A scathing Senate report (pdf) in 2012 accused the for-profit college industry of preying on non-traditional students with access to federal funds.

California Attorney General Kamala Harris sued Orange County-based Corinthian Colleges Inc. the next year. Internal company documents described the college’s targeted demographic as “isolated,” “impatient,” individuals with “low self-esteem,” who have “few people in their lives who care about them” and who are “stuck” and “unable to see and plan well for future.”

Corinthian filed for bankruptcy protection this year after a federal investigation of inflated job-placement rates.  The U.S. Department of Education fined the company $30 million. The feds have filed two federal lawsuits against ITT Educational Services, and the University of Phoenix was told to stop recruiting on military bases, at least temporarily.

EDMC did not admit any wrongdoing as part of the settlement and said it believes the “allegations in the cases were without merit” and was glad it could put “these matters behind us” and return “our focus to educating students.”

–Ken Broder


To Learn More:

For-Profit Schools Face Record Fine (by Mark Muckenfuss, Riverside Press-Enterprise)

For-Profit College Operator EDMC Will Forgive Student Loans (by Stephanie Saul, New York Times)

Schneiderman Strikes Again: For-Profit College Chain Must Forgive $102 Million in Student Loans (by Casey Quinlan, ThinkProgress)

For-Profit College Will Pay $95.5 Million to Settle "Boiler Room" Recruiting Case (by Chris Kirkham, Los Angeles Times)

DOJ Files Suit Against Education Management (by Tim Schooley, Pittsburgh Business Times)

Brown Vetoes Bill to Help Students Ripped Off by Shuttered Corinthian Colleges (by Ken Broder, AllGov California)

For-Profit College Company to Pay $95.5 Million to Settle Claims of Illegal Recruiting, Consumer Fraud and Other Violations (U.S. Department of Justice)

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