Federal and state authorities announced a $95.5-million settlement Monday with the nation's second-largest chain of for-profit colleges.
The settlement with Education Management Corp. resolves a long-running federal whistleblower case in which former employees alleged the company was illegally paying recruiters based on the number of students they enrolled. The U.S Justice Department intervened in the case in 2011, along with several state attorneys general.
By fostering a high-pressure sales operation for its recruiters, Education Management Corp. violated a ban on such compensation and was able to tap into billions of dollars in federal student aid, officials said.
"Instead of caring about whether a student would be successful in EDMC's programs, the company seemed to only care about revenue," said U.S. Education Secretary Arne Duncan. The practices came "at a significant cost, both to students and taxpayers."
Duncan announced the settlement alongside U.S. Atty. Gen. Loretta Lynch, U.S. Attorney David Hickton of Western Pennsylvania and Iowa Atty. Gen. Tom Miller, who is leading a multi-state probe of the for-profit college industry.
Pittsburgh-based EDMC operates more than 100 campuses across the U.S. and Canada. The company owns the Art Institutes, Brown-Mackie College, Argosy University and South University.
The company operates more than a dozen campuses in California, including four Art Institute locations in the Southland.
EDMC Chief Executive Mark McEachen said the company continues to believe the allegations were "without merit."
"Putting these matters behind us returns our focus to educating students," he said.
The for-profit college industry has faced mounting scrutiny for years amid complaints of high student loan defaults and poor job prospects for graduates. Corinthian Colleges Inc., based in Santa Ana, filed for bankruptcy protection this year after a federal investigation into inflated job-placement rates.
ITT Educational Services faces two federal lawsuits into a private lending program it offered students. And the University of Phoenix has been temporarily banned from recruiting on military bases following allegations of recruitment violations.
The violations in the EDMC case revolve around a federal rule that prohibits educational institutions from giving higher compensation to recruiters who bring in more students. To be eligible for federal student loans and grants, schools must certify that they are not paying recruiters in that way.
"EDMC pledged to the United States that it was not paying incentive compensation when, in fact, it fostered a high-pressure, boiler-room sales operation," said David Hickton, U.S. attorney for the Western District of Pennsylvania.
In addition to the $95.5-million settlement, EDMC signed on to an agreement with 39 state attorneys general that governs recruitment practices. EDMC will be prohibited from enrolling students into programs where there are few job prospects and cannot enroll students into programs that do not qualify for state licensure in areas such as teaching.
McEachen said the company will provide students with a one-page disclosure on job-placement rates and program costs.
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