Education Management Corporation (EDMC), the second-largest for-profit education company in the U.S., is paying $95.5 million to settle charges it falsely obtained federal and state education funds.
The settlement includes a $102.8 million student-loan forgiveness program that will effect about 80,000 former students.
This case marks the largest false claims settlement ever with a for-profit educational institute, U.S. Attorney General Loretta E. Lynch announced Monday.
Beginning in 2007, two EDMC employees blew the whistle on the company by alleging that it was running “a high-pressure recruitment mill,” said Lynch in a statement. “Essentially, the more students a recruiter induced to enroll, the more money that recruiter would receive,” she added.
These employees alleged that EDMC’s recruitment practices violated federal law which prohibits schools from basing recruiters’ pay on their success in securing new enrollees. That legal ban is in place so that schools will account for the unique qualities and needs of potential students, rather than simply treating them as a vehicle for tapping into federal student aid funds.
EDMC is the parent company of four entities: Argosy University, The Art Institutes, Brown Mackie College, and South University. It was acquired by Goldman Sachs in 2006, which now retains 40 percent ownership.
“This settlement should be a very clear warning for other career colleges out there,” Secretary of Education Arne Duncan said at the press conference. “We will not stand by when you profit illegally off of students and taxpayers.”
The EDMC settlement is not the first big shake-up in the for-profit college industry this year. In October, Apollo Education Group, the parent company of The University of Phoenix (UoP), was suspended from recruiting military students by the Department of Defense.
Another for-profit giant, Corinthian Colleges, filed for Chapter 11 U.S. bankruptcy protection in April after an ongoing investigation by the U.S. Education Department and a $30 million fine.
According to Attorney General Lynch: “The unprecedented size of the payment – and the stringent compliance measures EDMC has accepted – reflect the fact that this kind of abuse hurts not only taxpayers, but also the students – many of them non-traditional learners like veterans, older individuals and working parents – who trusted EDMC to provide an education that would address their individual needs.”