PITTSBURGH - The nation’s second-largest network of for-profit colleges has settled with the United States for almost $96 million over allegations that it conducted commission-based recruiting of students.
Pittsburgh-based Education Management Corporation, or EDMC, faced the charges after former employees alleged that recruiters for the company were paid in accordance with the number of students they enrolled. This practice is not allowed by schools accepting federal student financial aid and grants.
In a press release following the settlement, U.S. Attorney General Loretta Lynch called the company “a recruitment mill.”
EDCM collected more than $11 billion in federal money during the eight years the alleged offenses occurred. To qualify for that money, the company had to certify it was in compliance with Title IV of the Higher Education Act, which expressly prohibits recruiters making money off of bonuses or commissions.
After witnesses came forth, four suits were filed by U.S. attorneys alleging violations of the False Claims Act.
Attorneys for the case called the settlement one of the largest of its kind.
“This one is unique in that for-profit education context,” said Angela Porter, an attorney with Dorsey and Whitney, which runs a blog focusing on False Claims Act cases.
“The government speaking on the significance of that settlement is notable.”
U.S. Department of Education Secretary Arne Duncan said the settlement would serve as a “warning” to similar career colleges.
“We will not stand by while you profit illegally off of students and taxpayers,” Duncan said in a press release put out the the U.S. Attorney General’s office.
EDMC runs the second-largest network of for-profit colleges. These include the Art Institutes, South University, Argosy University and Brown-Mackie College - the total enrollment from these is estimated by the government at more than 100,000 students.
In the original complaint, U.S. attorneys allege that EDMC was running a “high pressure sales business” that “paid its recruiters based only on the number of students they enrolled.” In a press release, attorneys noted that federal grants and loans comprised the majority of revenue for EDMC since 2003.
Porter noted that there’s a level of trust in the certification provided by companies, such as EDCM, that they are in compliance. Whistleblowers, she said, are a common method for building such cases, known as qui tam suits.
The whistleblowers in the four separate cases against EDMC will receive a share of $11.3 million of the settlement.