by loretta
Federal regulators have taken more interest in for-profit colleges since GW Bush left office. Until recently, regulations have been lax or poorly enforced. Meanwhile, a growing number of these for-profit institutions of higher learning have served as giant conduits for sucking federal financial aid money out of the public trust and into the hands of the private investors who own the colleges. Most of the money is student loan dollars, which are non-dischargeable debt owed by the student.
Until this week, the highest profile action against a for-profit school was the U.S. Department of Education's lawsuit against the University of Phoenix, which settled in 2007 for $9.8 million. Now the
New York Times reports that:
The Department of Justice and four states on Monday filed a multibillion-dollar fraud suit against the Education Management Corporation, the nation’s second-largest for-profit college company, charging that it was not eligible for the $11 billion in state and federal financial aid it had received from July 2003 through June 2011.
The most interesting thing about this lawsuit (aside from the potential $33 billion in damages) is that the ownership of Education Management Corporation includes some names you might recognize: Goldman Sachs, and Maine senator Olympia Snowe.
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According to the USDOJ complaint, Education Management wasn't very picky about who they enrolled:
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.
Federal rules prohibit schools that receive federal financial aid from using enrollments as their only metric for determining compensation of recruiters. Education Management denies that enrollments were their only metric.
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