U.S. Reaches $95.5M Settlement with For-Profit College Co.

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Education Management Corp., the second largest for-profit college institution in the United States, has agreed to a settlement which resolves four False Claims Act lawsuits, including concerns by the U.S. Department of Justice and 39 states over its recruitment practices.

Specifically, the lawsuits alleged that Education Management Corp. paid their recruiters based on the number of college students they successfully recruited, which is against federal law.

The U.S. government and several states have laws that prohibit schools from paying recruiters based on their student enrollment if those schools want access to government loans. The government does not want recruiters to use high-pressure, misleading sales tactics to push students into for-profit colleges backed by federal and state student loans.

The DOJ and some states allege that is exactly what Education Management Corp. has been doing since 2003, even though it has certified to the government that it does not pay recruiters in that way.

“Operating essentially as a recruitment mill, [Education Management Corp.’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,” U.S. Attorney General Loretta E. Lynch stated in a press release.

Education Management Corporation also issued a press release, which declares that it has agreed to forgive student loans for students “who enrolled with less than 24 hours of transfer credit and who left within forty-five (45) days of the first day of their first term, and whose final day of attendance at an EDMC school was between January 1, 2006, and December 31, 2014 will qualify for loan forgiveness from the loans that [Education Management Corp.] institutions made to them.”

Education Management Corp.’s institutions include over 110 locations in the United States, under the names of The Art Institutes, Argosy University, Brown Mackie Colleges, and South University. Over 100,000 students are enrolled in for-profit schools under Education Management Corp.

According to the DOJ press release, “the global settlement also encompasses an investigation by a consortium of state Attorneys General, of consumer-fraud allegations involving deceptive and misleading recruiting practices.”

In addition to the loan forgiveness, the settlement with the states requires Education Management Corp. “to undertake various compliance obligations, including detailed disclosure obligations to students, prohibitions on deceptive or misleading recruiting practices, and oversight by an administrator to ensure compliance.”

“This is a rigorous agreement that not only provides some relief to a large number of former students through loan forgiveness, but helps ensure that the company will make substantial changes to its business practices for future students,” Iowa Attorney General Tom Miller stated.

The Education Management Corp. Settlement resolves the following three cases in the U.S. District Court for the Western District of Pennsylvania: United States, et al. v. Education Management LLC, et al., Case No. 2:07-CV-00461; United States, et al. v. Education Management Corp., Case No.  2:10-CV-00131; and United States, et al., v. The Art Institute Online Inc., et al., Case No. 2:11-CV-00601. The settlement also resolves United States, et al. v. Education Management Corp., Case No. 3:12-CV-01008, in the U.S. District Court for the Middle District of Tennessee.