For-profit college must pay $200M to forgive loans, pay settlement

By Amy R. Connolly  |  Nov. 17, 2015 at 2:15 PM
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WASHINGTON, Nov. 17 (UPI) -- The for-profit college operator Education Management Corporation agreed to pay nearly $200 million to forgive student loans and resolve federal fraud claims in deals that have been lauded as "unprecedented" and "historic," but may not help a lion's share of student borrowers.

EDMC agreed Monday to forgive $102.8 million in loans for some 80,000 former students nationwide. The students were allegedly pressured to take out private loans for coursework at the company's 110 online and brick-and-mortar schools operating under the names Art Institute, Argosy University, Brown Mackie College and South University. The average eligible student is expected to receive $1,370 in loan forgiveness.

In a separate settlement, EDMC, the second-largest for-profit education company in the U.S., agreed to a $95.5 million Department of Justice civil settlement to resolve accusations the company used high-pressure tactics to boost enrollment. The company has denied the allegations and admitted no wrongdoing in the settlement.

The settlements make no specific provisions to help students paying on federal student loans obtained while attending EDMC schools. Federal student loans are largely non-dischargeable debts.

"EDMC is proud to have worked closely with the state attorneys general to produce a new, one-page, easy-to-read disclosure that provides important information for students as they consider their higher education options at one of our schools," EDMC President and CEO Mark A. McEachen said. "We are also pleased to have resolved the civil claims raised by the Department of Justice and state attorneys general. Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students."

The allegations against the company began in 2007 when two whistleblowers uncovered the institution's "deceptive practices," the DOJ said. In 2011, the federal government intervened in the case. The federal government is expected to share the settlement with the whistle-blowers and the participating states.

At a news conference Monday, U.S. Attorney General Loretta Lynch said the settlement to resolve claims the company fraudulently obtained education funding is the largest False Claims Act settlement with a for-profit educational institution in American history.

"The unprecedented size of the payment -- and the stringent compliance measures EDMC has accepted -- reflect the fact that this kind of abuse hurts not only taxpayers, but also the students -- many of them non-traditional learners like veterans, older individuals and working parents -- who trusted EDMC to provide an education that would address their individual needs," Lynch said. "EDMC's actions were not only a betrayal of their students' trust, they were a violation of federal law."

On the state level, the consumer-fraud case brought by the attorneys general of 39 states and the District of Columbia require a wide range of consumer-protection measures, including additional disclosures to "provide more transparency during the recruiting process," EDMC said.

Under the agreement, EDMC must, in part, promise to not enroll students in programs that do not lead to state licensure that is required for employment and not make misrepresentations concerning accreditation, selectivity, graduation rates, placement rates, transferability of credit, financial aid, veterans' benefits and licensure requirements.

Consumer advocates and for-profit college critics say the federal settlement and new rules enacted under the state settlement will do little to help those students still wading through federal loans from an EDMC education. Education Secretary Arne Duncan said students who believe they qualify for EDMC federal loan discharge should present their claims to the Department of Education.

"I am disappointed that the department's only plan for EDMC students is to hear their complaints," Robyn Smith, a lawyer at the National Consumer Law Center, told The Chronicle of Higher Education.

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