For-Profit College To Pay Record Sum to Settle Fraud Charges

November 16, 2015, 5:50 PM UTC
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WASHINGTON, DC - NOVEMBER 16: U.S. Attorney General Loretta Lynch (R) and Education Secretary Arne Duncan announce a major civil settlement at the Justice Department November 16, 2015 in Washington, DC. Headquartered in Pittsburgh, Education Management Corporation, the nation's second-largest for-profit college operator, is expected to agree to pay nearly $90 million to settle a case accusing it of compensating employees based on how many students they enrolled, which encouraged aggressive tactics to increase revenue. The corporation operates online and at brick-and-mortar locations in 32 states and Canada under the names the Art Institute, Argosy University, Brown Mackie College and South University. (Photo by Chip Somodevilla/Getty Images)
Photograph by Chip Somodevilla—Getty Images

In a victory for the Obama administration in its on-going crack-down against for-profit colleges, Education Management Corporation will pay $95.5 million to settle accusations that it paid employees based on how many students they enrolled and lied to the federal government about it.

In announcing the settlement Monday, Attorney General Loretta Lynch said the deal was the largest False Claims Act settlement with a for-profit education institution in U.S. history. “The unprecedented size of this payment and the stringent compliance measures that [Education Management] has accepted reflect the fact that this kind of abuse hurts not only taxpayers, but also the students,” she said.

The New York Times reported settlement rumors early Monday.

The case against Education Management, which is partly owned by Goldman Sachs and operates online and brick-and-mortar colleges under the Art Institute, Argosy University, Brown Mackie College and South University names, was the first in which the government intervened to back whistle-blowers’ accusations that a company consistently paid recruiters based on how many students they enrolled. Those incentives violate a federal law that bans such compensation structures to keep companies from signing up unqualified students simply to access their federal aid money.

Lynntoya Washington, a former assistant director of admissions at the Art Institute of Pittsburgh Online Division, served as a whistleblower in the case. She first charged files against Education Management in 2007 in federal court in Western Pennsylvania. The Department of Justice and four states—California, Florida, Illinois and Indiana—joined the lawsuit in 2011. (By then another whistle-blower had joined the suit too.)

The case accuses the Pittsburgh-based Education Management of rewarding recruiters for enrolling students through a system of bonuses like all-expense-paid trips to Mexico and Las Vegas, and lesser gifts like gift cards to Starbucks, Godiva chocolates, baseball tickets, free lunches and time off. Pittsburgh lawyer Harry Litman, who served as lead counsel for the whistle-blowers, told the Times that the inside joke at Education Management was that students’ qualified for enrollment as long as they had a “pulse and a Pell,” as in a federal Pell grant.

Education Management then hid its illegal incentive program from the Department of Education in order to remain eligible to receive federal funds, according to the Justice Department’s complaint.

Education Secretary Arne Duncan on Monday said that Education Management received nearly 90% of its revenue from federal financial aid. The company “wasn’t interested in playing by the rules,” he said. It “only cared about revenue” despite the significant costs that philosophy imposed on students and tax payers.

For-profit colleges have been a frequent target of the Obama administration because they rely heavily on federal student aid and deliver questionable education and employment outcomes. In April, the DOE fined another for-profit system Corinthian Colleges $30 million for lying about its students’ success. The college chain filed for bankruptcy in May.


Because damages can be tripled under the False Claims Act—the basis for the government’s case against Education Management—the for-profit college operator initially faced potential damages of $33 billion, but as is typically the case in such instances, it’s settling for a much smaller sum.

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