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Charged with fraud and deceit, one of the US’s biggest for-profit colleges is paying out $95 million

AP Photo/Mark Wallheiser
Not all fun and games.
By Amy X. Wang
Published Last updated This article is more than 2 years old.

The for-profit education industry is under attack.

Earlier this year, the US government vowed to hold schools more accountable for their graduates’ soaring debt—casting  suspicion particularly on for-profit colleges, which have only 11% of the country’s students but manage to account for 44% of federal student loan defaults.

Now, the University of Phoenix, ITT Technical Institute, and Career Education Corp—some of the biggest names in the for-profit sector—are all being probed for deceiving students to boost revenue. Corinthian Colleges, a chain of 107 campuses, has filed for bankruptcy and is paying $530 million for trapping students into predatory private loans. And today (Nov. 16), giant college company Education Management Corporation (EDMC) is handing over $95.5 million to settle accusations that it received federal student aid by enrolling students through illegal means.

“Operating essentially as a recruitment mill, EDMC’s actions were not only a violation of federal law but also a violation of the trust placed in them by their students—including veterans and working parents—all at taxpayer expense,” Loretta Lynch, US attorney general, said of the settlement.

EDMC is the US’s second-largest for-profit college chain. Eight years ago, two ex-employees alleged that the company illicitly paid enrollment-based bonuses to its recruiters, pressured students to enroll regardless of their qualifications (breaking rules that prevent schools from pushing students into loans to boost revenue), and lied to the government about these actions to receive federal money. In 2011, the US Department of Justice hopped onto the lawsuit as well.

Today’s $95.5 million penalty is still only 1% of the $11 billion in federal student aid that the Justice Department and multiple state attorneys general say EDMC fraudulently claimed from 2003 to 2011.

But the sum is the largest civil settlement involving false claims that the US Education Department has ever made, and it paves the way for more aggressive action against deceptive educational practices in the future.

“This settlement should be a warning to other career colleges out there: We will not stand by while you profit illegally off of students and taxpayers,” Arne Duncan, the US education secretary, said in a press conference.

EDMC says it continues to believe the allegations “were without merit” and it is glad to put “these matters behind us.”

The company, which operates 110 campuses under the names South University, Argosy University, the Art Institutes and Brown-Mackie College, has more than 100,000 students across the country. According to the settlement, the company promises to be more transparent with its students, forgive the debts of those who enrolled for fewer than 45 days from 2006 to 2014, and record all telephone and online conversations with prospective students. Nowhere in the settlement does EDMC admit to any wrongdoing.

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