Pittsburgh-based Education Management Corporation has settled charges that recruiters for the for-profit education company were paid based on the number of students enrolled. The price tag with the federal government: $96 million.
Commission-based recruiting has been a chronic problem in the for-profit education industry, with "admissions counselors" often incentivized to convince students to enroll at schools because bonus compensation depended on it. This phenomenon created the potential for schools to over promise and under deliver.
According to one report
regarding EDMC's settlement announced in early January 2016, U.S. attorneys alleged that EDMC was running a "high pressure sales business" that "paid its recruiters based only on the number of students they enrolled." A majority of EDMC's multi-billion revenue since 2003 came from federal student loans and grants -- in other words, taxpayers.
EDMC's schools have included the Art Institutes, South University, Argosy University and Brown-Mackie College.
In a press release, then-U.S. Department of Education Secretary Arne Duncan stated, "We will not stand by while you profit illegally off of students and taxpayers."
Fifteen Art Institutes campuses -- including the Art Institute of Michigan in Troy attended by about 300 students -- are closing as its owner, Education Management Corp., continues to consolidate during a time of heightened federal scrutiny of for-profit colleges.
The Art Institute campuses closing in the near future appear to include those campuses in Atlanta, Boston, Cincinnati, Fort Worth, Houston, Jacksonville, Kansas City, New York, Salt Lake City, Washington, D.C., and Wisconsin.
About 1,200 employees, including 200 immediately, will either lose their jobs or find employment elsewhere within the company, according to a report in the Pittsburgh Tribune
Federal rules going into effect this summer will require for-profit colleges to demonstrate that they sufficiently prepare students for "gainful employment" in order to remain eligible for federal student financial aid, which is the lifeblood of most for-profit schools.
The Tribune story reported that the Art Institutes are "particularly susceptible" to these new standards because of the types of programs they offer, such as culinary or animation, according to Trace Urdan, an analyst at Wells Fargo Securities. The low wages that culinary students would earn as prep cooks wouldn't immediately justify the high cost of their educations, Urdan said.
Education Management Corp., the Pittsburgh-based for-profit education giant with more than 100 campuses around the country, is undergoing major structural change.
EDMC operates around 110 schools in more than than 30 states, including The Art Institutes, Argosy University, Brown Mackie College and South University.
Eight members of the company's 11-person board of directors have resigned as the company repositions itself by cutting debt in the wake of financial losses and federal regulation, according to news reports
. EDMC's president and chief executive officer Edward West will remain on the company's smaller board.
According to the Associated Press, "The company is now privately held and two of its new board members announced Tuesday are John Danielson, chairman and managing director of the Chartwell Hamilton Group LLC, a New York-based educational consulting firm; and Johnathan Harber, the founder of Schoolnet Inc., a firm that develops online learning solutions and helps schools implement learning standards, including Common Core."
The AP noted that the changes come at a time when the company has lost $684 million during the last year "and could face penalties from the federal government based on the alleged recruiting violations as well as a class-action suit by investors filed in U.S. District Court in Pittsburgh in September."
"The company is still attempting to settle U.S. Justice Department litigation accusing it of illegally using enrollment incentives to pay its recruiters, and Tuesday's moves are believed to be part of an overall effort to solve the company's regulatory, legal and financial troubles," the AP said.
The Art Institute system of schools -- part of the for-profit Education Management Corp. -- has laid off hundreds of faculty and staff, according to a report
by Pittsburgh Business Times. More than 225 positions were eliminated at Art Institute campuses across the country.
One of the nation's largest for-profit education companies -- Education Management Corp ("EDMC") -- "cannot put to rest allegations that it lied to snag" billions of dollars in federal student aid, according to a Courthouse News Service report
. The federal whistleblower lawsuit was started in 2007 by a former admissions officers, Lynntoya Washington, who had worked at one of EDMC's schools, Art Institute of Pittsburgh. In 2011, the federal government along with 11 states and the District of Columbia joined the lawsuit, claiming that EDMC had improperly collected more than $11 billion in student aid while violating federal rules that prevented admissions counselors from being paid incentives to recruit students. According to the Courthouse News report, the federal judge to whom the case is assigned is permitting fact-finding in the case to proceed.
The Orange County Register reports
that student complaints about Education Management Corporation (EDMC)'s Art Institute campuses form the basis for federal lawsuits pending against the school. The paper details the experience of Brendan Bieri, a student at the Art Institute of California, who told the Register that at the time of enrollment, he was advised by an enrollment counselor that "
if he enrolled to earn
a degree in visual game programming, Bieri would learn animation from professionals who had worked for Disney. The program at the Santa Ana campus was so good, the counselor said, that 95 percent of graduates quickly land a job. Three years later, Bieri graduated with $90,000 in loans and found that few of the recruiter’s predictions came true. He is now helping his dad start an Alaskan company that sells smoked salmon dog treats, while quickly falling behind on his loans. " EDMC contends that the lawsuits have no merit and that the Art Institute has a strong record of success in building careers.