The Department of Education has registered a major victory in its efforts to crack down on the predatory and deceptive practices of for-profit colleges. As today’s New York Times reported, Education Management Corporation (EDMC), the country’s second-largest for-profit college provider, has agreed to settle a lawsuit in which it was accused of encouraging predatory recruiting tactics among its employees.
Under the terms of the settlement, EDMC will pay close to $90 million to settle claims brought by two whistleblowers, the Department of Education and 39 states that recruiters’ salaries were directly linked to the number of students they recruited. The suit was brought under the federal False Claims Act, which allows whistleblowers to bring an action against their employers for misuse of government funds. Specifically, the two former employees who initiated the suit accused the company of “violating a federal ban on per capita incentive compensation at institutions that participate in federal student financial aid program,” the Times reports. The purpose of the ban is to prevent colleges from enrolling unqualified students in order to maximize revenue.
According to the Times article, the plaintiffs alleged that nearly all of the company’s tuition-generated revenue from 2003 to 2011 “came from federal aid, including subsidized loan and Pell grants to help low-income students obtain college educations.” Because recruiters were offered incentive pay based on the number of students they enrolled, this revenue was allegedly earned through fraudulent means.
For those students who were defrauded in this manner, this settlement means justice. The Pittsburgh Tribune-Review reports that the company has agreed to “forgive the debts by former students who enrolled between 2006 and 2014, but who dropped out after 45 days or less.” Since student loan debt cannot be discharged in a Chapter 7 bankruptcy, this outcome is significant. It promises a fresh start to the many deceived students who withdrew from EDMC’s institutions saddled with massive student loan debt and no realistic career options that would enable them to ever pay off it off.
In a larger sense, this settlement also means justice for higher education, as it will surely rein in the fraudulent practices of for-profit colleges, which were documented in a troubling 2012 report by the Senate’s Health, Education, Labor, and Pensions (HELP) committee. The committee’s investigation found widespread deceptive practices throughout the for-profit college industry, including overpriced tuition and overaggressive recruiting tactics that “mislead prospective students with regard to the cost of the program, the time to complete the program, the completion rates of other students, the success of other students at finding jobs, the transferability of the credit, or the reputation and accreditation of the school.”
Of course, EDMC was allowed to admit no wrongdoing as part of this settlement. And, while $90 million is a lot of money, it pales in comparison to the billions it could have lost in trial. In fact, the Pittsburgh Tribune-Review reports that prosecutors had hoped a judge would “forfeit some of the $11 billion the company received in federal and state student aid it received between 2003 and 2011.” Thus, it’s no wonder that EDMC’s CEO Mark MacEchen called this settlement “a very positive thing.”
Still, EDMC has forgiven the debts of many students who were victimized by its predatory lending, and it has pledged to implement improvements to its recruiting tactics, including a readable disclosure form detailing graduate placement rates and student loan debt information. More importantly, this settlement could trigger wholesale reforms throughout the for-profit education industry. Those are indeed very positive things