U.S. reaches $95.5M settlement in for-profit education case

A Pennsylvania company that enrolls more than 100,000 students at for-profit trade schools and colleges across the U.S. and Canada has agreed to pay $95.5 million to settle claims it illegally paid recruiters and exaggerated the career-placement abilities of its schools.

Under deals announced Monday by the Justice Department and state attorneys general, Education Management Corp. also agreed to forgive $102.8 million in loans it made to more than 80,000 former students.

"This case not only highlights the abuses in EDMC's recruitment system; it also highlights the brave actions of EDMC employees who refused to go along with the institution's deceptive practices," U.S. Attorney General Loretta Lynch said at a news conference.

The company runs 110 schools in 32 states and Canada for chefs, artists and other trades, including The Art Institutes, Argosy University, Brown Mackie College and South University. Under the settlement, it didn't acknowledge wrongdoing but said it has "worked with state attorneys general to develop new, more transparent recruiting and disclosure standards."

The case began in 2007 when a recruiter and the EDMC employee who trained her filed a whistleblower lawsuit in federal court in Pittsburgh.

That lawsuit, and others like it, claimed the company signed up students it knew likely wouldn't succeed or finish its programs. It did so by paying recruiters using illegal enrollment-based incentives in hopes of raking in government financial aid, which provided the bulk of the company's income, the lawsuit said.

Eventually, the Justice Department, 12 states and the District of Columbia intervened and, initially, sought to have Education Management forfeit more than $11 billion it received in federal and state student aid since 2003.

"A fundamental compact exists between the government and the public that prioritizes the funding of an education system, accessible to all and free from fraud and abuse," said David Hickton, the U.S. attorney in Pittsburgh. The company, he said, had "turned that compact on its head by placing the pursuit ahead of profits ahead of a legitimate educational mission."

Nadia Taylor, 23, of Durham, North Carolina, said she enrolled at the Culinary Institute at Raleigh-Durham in 2011 after being cold-called by a recruiter who knew personal details about her, including her low-income status, and that her mother was incarcerated and her father deceased.

Taylor said the recruiter talked her into a four-year bachelor's degree program without disclosing its cost — $100,000 — which Taylor learned about only after completing her first quarter. Taylor said she eventually quit school in 2014, with two months left, when the curriculum was changed requiring her to take more classes she couldn't afford.

"I would love a degree," said Taylor, who cooks at a steakhouse after losing her job as a hotel sous chef because she doesn't have a diploma. "Right now I have $47,000 in debt and literally not one thing to show for it."

Among other things, the schools will give students "easy-to-read, single-page" disclosure statements outlining graduate placement rates and financial costs. Students will also be able to withdraw, tuition-free, within seven days of enrolling in a bricks-and-mortar schools and 21 days from online programs.

The loan forgiveness applies to students that left Education Management Corp. schools within 45 days of enrolling from 2006 through 2014.

The company said it still believes the allegations were without merit, but it wanted put "these matters behind us" and return its focus to educating students.

The firm withdrew its stock from the Nasdaq index last year, saying regulatory costs outweighed the benefits of being publicly traded. The company lost $684 million last year and cut hundreds of jobs, but it still has more than 20,000 corporate and school employees.