For-Profit Education Management Corporation Settlement Does Not Do Enough for Students Saddled with Debt!

Dear Commons Community,

On Monday, Attorney General Loretta Lynch and Secretary of Education Arnie Duncan announced “a landmark settlement with Education Management Corporation (EDMC)” for a false-claims lawsuit regarding student recruitment.  On second look, it appears that this settlement does little for the students who are saddled with debt.  As reported in The Chronicle of Higher Education:

“For all the claims that the $95.5-million settlement, announced on Monday, of a federal false-claims lawsuit against the Education Management Corporation was “historic,” “unprecedented,” and “a very clear warning to other career colleges out there,” the deal actually won’t do a whole lot for the thousands of students who may have been pressured to enroll by the company’s admissions recruiters over the past decade.

In fact, some of the biggest financial beneficiaries will be the lawyers for the four sets of whistle-blowers who brought the allegations of “boiler room”-style recruiting to light, beginning in 2007. The federal government joined the lawsuit in 2011. Assuming the company pays the full amount — it has a payment schedule that runs until 2022 — the lawyers will receive nearly $20 million of the total.

EDMC, as the company is known, has denied the allegations against it and has admitted no wrongdoing as part of the settlement.

But at a news conference on Monday at the Department of Justice, the U.S. attorney general, Loretta E. Lynch, said the company had broken the rules against paying incentives to its admissions representatives by “running a high-pressure recruitment mill.”

“Their widespread practices did generate a substantial drain on the public fisc,” said Ms. Lynch, but she said the parties had agreed to settle for a small fraction of that amount “after factoring in the company’s ability to pay.” The last time it reported finances publicly, EDMC said it had lost $664 million on revenue of nearly $2.3 billion for the year ending in June 2014, and in 2015 it closed a number of campuses. It now operates 110 locations in 32 states and in Canada.

A $78.5-million settlement that the University of Phoenix agreed to pay in 2009 had previously been the highest for a higher-education false-claims case.

‘The company agrees not to break the law going forward? None of this sounds like remedy to me.’

A companion settlement of a multistate consumer-fraud case, brought by the attorneys general of 39 states plus the District of Columbia, requires a range of new consumer-protection practices for EDMC, and potentially for other companies. That could have a broader effect, student advocates said. But several of them were skeptical of that, too.

In exchange for having broken laws, “the company agrees not to break the law going forward? None of this sounds like remedy to me,” said Toby Merrill, director of the Project on Predatory Student Lending, at Harvard Law School. “The company has taken billions of federal funding and distributed that to its executives and shareholders,” but students will see very little of it, Ms. Merrill said.

EDMC, which owns Argosy University, the Art Institutes, Brown Mackie Colleges, and South University, has agreed to forgive about $100 million in loans it made to as many as 80,000 students who briefly attended its colleges from 2006 to 2014. Eligible borrowers would receive an average of $1,370 in loan relief.

But to the dislike of several student advocates, the federal settlement makes no specific provision to help students who are still on the hook for billions of dollars in federal student loans they obtained to attend EDMC institutions. The secretary of education, Arne Duncan, said students who believe they qualify for a loan discharge because EDMC misrepresented information to them would have to present those claims to the Department of Education. “We’re open for business” to hear those claims, he said at the news conference.

“Once again, student victims are left holding the bag,” said Stephen Burd, a senior policy analyst in the education-policy program at New America who writes frequently about for-profit colleges. Mr. Burd, who was formerly a reporter for The Chronicle, said he was pleased that the states and the federal government had pursued the cases against EDMC but faulted the resolution.

“Too many of these cases are settled without finding fault,” he said, “and the for-profit industry has been able to say, ‘Oh, nothing is proven.’”

While this settlement is a small step in the right direction, much more needs to be done to protect students and to recoup funds from unscrupulous for-profit operators



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