The US Justice Department and the states of California, Florida, Illinois and Indiana have filed a multibillion dollar fraud lawsuit against the Education Management Corporation, the second-largest for-profit university in the US, says the Chronicle of Higher Education. The suit contends that Education Management did not qualify for the $11 billion in state and federal financial aid it received from July 2003 through June 2011 due to its use of illegal enrollment practices.
Education Management owns Argosy University, the Art Institutes, Brown Mackie College, South University, and Western State University.
The lawsuit casts much-needed scrutiny on for-profit colleges and universities in the US. 10 percent of students in higher education currently attend for-profit schools; these same students account for half of all students who default on their loans, says the New York Times.
According to prosecutors, Education Management pays recruiters entirely on the basis of how many students they recruit, a violation of the Higher Education Act, which bans incentive compensation. Since Education Management adopted its compensation polices in 2003, the lawsuit contends that it has illegally received more than $11 billion in federal aid for students. In fiscal 2010 along, Education Management received $2.2 billion of federal financial aid in 2010; these funds made up 89.3 percent of its net revenues. The New York Times describes some of its recruiting practices:
The complaint said the company had a “boiler-room style sales culture” in which recruiters were instructed to use high-pressure sales techniques and inflated claims about career placement to increase student enrollment, regardless of applicants’ qualifications. Recruiters were encouraged to enroll even applicants who were unable to write coherently, who appeared to be under the influence of drugs or who sought to enroll in an online program but had no computer.
According to the suit, recruiters were also led to exploit applicants’ psychological vulnerabilities — for example, a parent’s hopes of moving a child out of a dangerous neighborhood.
Education Management has responded to the lawsuit by stating that “The pursuit of this legal action by the federal government and a handful of states is flat-out wrong.” However, in 2009, the Apollo Group, which owns the University of Phoenix, paid $78.5 million to settle a similar whistle-blower lawsuit. The University of Phoenix, the largest for-profit college in the US, was accused of improperly compensating recruiters.
Students at my college have asked me about graduate programs at Argosy University and pointed to claims about the employment of graduates and the school’s “flexible learning options” that would (my students say) allow them to got to school while working. Some students are also drawn to such universities’ graduate programs because standardized tests like the GRE are not required for admission. While certainly sympathetic to the challenges of many students with such tests, and their need to work to support themselves and their families, students need to know that they should be wary of the academic programs at for-profit schools.
As the Chronicle of Higher Education notes, other for-profit colleges have faced similar complaints. At a time when students are finding that it is more important than ever to have a master’s degree, they should take especial care in scrutinizing which schools they choose to attend: Glossy brochures and well-made websites only offer part of the picture about what a college or university offers.
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