In a press release dated November 16, The Justice Department announced a settlement with Education Management Corporation (EDMC) in which the corporation will pay nearly $100 million to make amends for its predatory recruitment practices. EDMC is the parent company of a stable of proprietary (for profit) colleges and universities which include Denver’s Argosy University. In addition, EDMC operates schools nationwide, including the Art Institutes, Brown-Mackie College and South University.
In her remarks announcing the settlement, Attorney General Loretta Lynch noted that this is the “largest False Claims Act settlement with a for-profit educational institution in American history.” The Justice Department became aware of the malfeasance when EDMC employees alerted the department that the corporation was running a high-pressure recruitment mill. Recruiters’ earnings were based on the number of students they induced to enroll. The tying of salary to number of students enrolled is a violation of the Incentive Compensation Ban of Title IV of the Higher Education Act.
In spite of this violation, EDMC certified its compliance with the ban to the Department of Education for over a decade. This willful deception is the basis of the penalty.
The $95.5 million penalty, while significant, represents a small portion of EDMC’s revenues from the federal government. According to the Huffington Post, EDMC collected $335 million in Pell Grants and $650 million in federal student loans last year.
In addition to the payment, EDMC has agreed to change its recruitment practices to provide greater transparency to potential students. Among these changes, all potential EDMC students will:
- Receive an easy to read single page disclosure that details important information like graduate placement rate and student financial impact
- Be able to use an interactive tool which will personalize and assist in their higher education decisions
- Receive no cost orientation when they start as an undergraduate at one of EDMC’s institutions
- For undergraduate students, have the ability to withdraw with no tuition obligation up to 7 days after their first class at on campus schools and up to 21 days after the start of the term at online programs (if they have less than 24 credits).
EDMC, which is a publicly traded company, has a per share price of 7 cents (Google Finance). This compares with an all-time high of 28 cents per share on December 30, 2011.
In spite of the disappointing stock performance, and government scrutiny, EDMC CEO Mark A. McEachen remains determined to persist. In noting that, “Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students.” McEachen affirmed his rhetorical commitment to fulfill the corporation’s mission to provide “education that builds careers and transforms lives of those who teach, learn and work here.”
The settlement, while helpful does not address a fundamental issue regarding proprietary schools. Specifically, how does a publicly traded corporation maximize profits to satisfy shareholders while assigning paramount priority to the needs of its students?