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UPDATE 1-U.S. for-profit college to pay record $95.5 mln settlement
November 16, 2015 / 7:29 PM / 2 years ago

UPDATE 1-U.S. for-profit college to pay record $95.5 mln settlement

(Recasts throughout with confirmation, details, reaction)

By Andy Sullivan

WASHINGTON, Nov 16 (Reuters) - Education Management Corp , the country’s second-largest operator of for-profit colleges, said on Monday it has agreed to pay a record $95.5 million to resolve charges that it used high-pressure sales tactics to mislead students, in violation of U.S. law.

The settlement is the latest blow for the for-profit education industry, which has suffered from declining enrollment and increased government scrutiny under President Barack Obama.

At a press conference in Washington, Obama administration officials said the company signed up as many students as possible to tap billions of dollars in federal student aid but had little interest in whether they completed a degree or found work after graduating.

“Instead of caring whether students would be successful, the company only cared about revenue,” Education Secretary Arne Duncan said.

U.S. Attorney General Loretta Lynch said the company paid its recruiters based only on how many students they enrolled, a violation of federal law. Student aid accounted for nine out of every 10 dollars in tuition revenue, officials said.

The settlement also covered consumer-fraud investigations in 39 states and the District of Columbia.

Pittsburgh-based Education Management enrolls more than 100,000 students through online courses and 32 brick-and-mortar campuses as the Art Institutes, Argosy University, Brown-Mackie College and South University.

The company did not admit fault under the settlement but agreed to allow the government to monitor its admissions and forgive the debts of some former students.

It also agreed to give prospective students a one-page form on facts such as employment prospects and average debt for those who have signed up. Students will be able to get a refund if they drop out shortly after enrolling.

“Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students,” company President Mark McEachen said in a prepared statement.

The figure, the largest false-claims settlement ever reached with a for-profit college, is a fraction of the $11 billion Education Management collected in federal student aid since 2003.

That settlement reflects the company’s financial condition and ability to pay, Lynch said. Its stock price has fallen from $28.66 in December 2011 to 7 cents before the agreement was unveiled, and it announced a debt restructuring in April.

Rivals have stumbled as well. Corinthian Colleges closed its doors and filed for bankruptcy earlier this year after facing state and federal probes about whether it misled investors and students. (Reporting by Andy Sullivan; Editing by Kevin Drawbaugh, Jonathan Oatis and Steve Orlofsky)

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