Massive Fraud Settlement In For-Profit College Industry – But Students Will Have To Pay Back The Loans!

by Staff | November 17th, 2015

Since the early 1990s, federal law has prohibited bonuses or other forms of reward that incentivizes employees of for-profit colleges to sign up unqualified students. The reason for the law was the fear that such incentives would cause recruiters to pressure applicants to enroll, mislead about the nature of the educational program and the likelihood of obtaining employment with such a degree. Soon, federal and state prosecutors are about to announce a settlement with Education Management Corporation, one of the nation’s largest for-profit college chains over violating that law, among other things. EDMC, as it is known, operates Art Institute, Argosy, Brown Mackie and South. It has 110 schools in 32 states and Canada with an enrollment of 100,000 students. The settlement will likely require EDMC to pay $100 million, an amount less than 1 percent of the federal student aid the government claims the company fraudulently claimed from 2003 to 2011. Under the False Claims Act, the federal government could have recovered three times the amount claimed in aid during those 8 years, or $33 billion, plus penalties, but for unknown reasons, chose not to.

The federal government joined an existing lawsuit filed by two whistleblowers who alleged that EDMC illegally paid bonuses to its employees solely for getting students to enroll, then lied to the government by claiming compliance with the federal law prohibiting such activity. Some employees were rewarded with free trips to Mexico and Las Vegas after meeting recruitment goals. Many recruiters were given gift cards and free tickets to entertainment venues. The lawsuit claimed that EDMC misled students about the loans they were obtaining, hid information from auditors and enrolled unqualified students. The lawsuit said EDMC had collected about $11 billion – 90% of it in federal student aid – through aggressive and mostly illegal methods from 2003 through 2011. Goldman Sachs is a part owner of EDMC. In 2011, the stock price of EDMC was $28 a share. Yesterday is opened at 9 cents a share.

This agreement with the Justice Department as it presently exists, does a disservice to the students who were duped into enrolling in the school. They essentially have an unmarketable degree and crushing student loan debts because, even though EDMC is agreeing to pay $100 million, there is no admission of wrongdoing – something common in settling with the federal government. Because there is no such admission, the students who were taken advantage of, pressured to enroll and lied to, still owe the federal government the entire amount of their student loan debt. While students can petition the Department of Education to grant debt relief, it makes it nearly impossible to obtain relief of any sort since there is no finding of liability by a court and no admission of guilt by EDMC.

Several States Attorneys General have joined the lawsuit and obtained debt relief for some, not all, EDMC students. In a separate agreement, students enrolled for 45 days or less and who had transferred fewer than 24 credit hours from another university will have their private student loans automatically forgiven by the company. The average student will receive about $1,370 in loan forgiveness. The $100 million fine will be shared with the whistleblowers and several states who joined in the lawsuit. The federal government will have $52.62 million which should be used to pay down the federal loans taken out by the EDMC students, but there is no requirement that the fine be used as such. However, EDMC will have to disclose to prospective students what they may owe in four years, how many students graduate and obtain jobs.