For-Profit Colleges Accused of Fraud in DOJ Lawsuit


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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Photo by WWC60510 [Public domain], via Wikimedia Commons


Gina H.
Gina H6 years ago

We may very well find that many state-funded colleges are guilty of similiar practices. I've worked in university systems where it was part of the job to sell education to potential students as the ticket out of poverty. It is true at a certain level but many students are duped into thinking that college will guarantee them a higher paying job. It ain't so. I, as millions of others, went into college buying the sales pitch that getting a degree will guarantee me a career and better paying job. Many of us didn't receive full grants to pay for our education nor have parents or companies fund our education so we were steered to "low interest" loan programs through local banks. So many, like myself, are faced with educational loan payments the size of a mortgage payment while stuck in a job market where you are lucky to make $1 over minimum wage WITH a BA. Educational institutions, meanwhile, get their money upfront to pay their sizeable salaries and benefits for full-time top management. College graduates are all now contending with the fact that higher paying jobs just aren't out there unless you're a slick politician being paid to speak at these universities. Education is a business like any other folks whether for-profit, private or state-run. I am glad that these practices are finally being investigated and hopefully those guilty of fraud will be punished appropriately.

Roger W.
Roger W.6 years ago

This is definitely alarming news, as I only recently decided to continue my education. I'm currently earning my Master's in Education at this school: I'm glad I checked it out before moving forward on getting a degree from them because clearly there have been abuses amongst other well known schools.

J C Bro
J C Brou6 years ago

Non transferable credit; skills that suit only specially tailored jobs that are likely dead end; high debt; no help finding these low end jobs. What else is there to do than investigate?

Chris Ray
Chris R6 years ago

Good they're being held accountable. Thanks Kristina!~

Sonya Mayfield
Sonya M6 years ago

Sad but true, University of Phoenix is notorious for this. They are sales people - there are no requirements to get in, the only requirement is the ability to pay for classes. They shop the loan programs to people as if they get commission - and I'm willing to bet they do get commissions..

Cat W.
Past Member 6 years ago

A very close associate of mine teaches at the Art Institute and she is mortified at the practices they employ. She witnesses hundreds of students who are not educated enough to be accepted into community colleges, given $90,000 loans that they will never be able to repay. They dole them out to people who are mentally handicapped. One such person had failed NINE times and is now $900,000 in debt. They don't care. The school gets the money, the student defaults, and the taxpayer picks up the bill. It is outright fraud and they are ruining thousands of young lives in the process.

Linda T.
Linda T6 years ago

Just another Corperate Welfare Program that puts the tax payer on the hook. Why was this not part of the budget cuts?

Devon N.
Devon N6 years ago

I received my Master's degree and my husband completed his Bachelor's degree and is working on his MPA at Walden University, an online for-profit college. I liked that fact that the admissions people we worked with were not high pressure sales people, did not offer pie-in-the-sky promises about employment, and that once enrolled, there were a variety of support options available. The school holds its students to higher academic standards of writing than many of the brick-and-mortar schools I am familiar with (my BSBA was from Arizona State University). Since my husband is currently job hunting, being able to say he is in school has helped to cover his period of unemployment (now at 3 years), and online offers him flexibility. Luckily for us, the school is not under investigation and does work hard to maintain its academic excellence in offerings. I feel sorry for students in other schools where this is not the case. Too often life experience is substituted for education, and then students find themselves unable to compete, or in debt for an education that is not recognized by employers as adequate.

Lynn C.
Lynn C6 years ago

Thanks for warning people. A young woman I know recently was able to receive a grant to go to school and started looking over the options. Her take on the pressure sales job she received was "they're like used car salesmen!"

Lawrence Travers
Lawrence Travers6 years ago

Also monitor non-profit colleges and universities for fraud.