By Hannah Richardson,BBC News education reporter
Minister David Willetts held at least 12 meetings with for-profit education firms before publishing his plans for university reform for England.
Meetings with representatives from two firms accused of recruitment or public loan fraud in the US were among them.
The universities minister published plans to make it easier for private providers to enter the sector in June.
The government said Mr Willetts had spoken to higher education providers "of all types" before doing so.
Mr Willetts has been up-front about his plans to open up England's higher education system to private providers to help increase the number and type of university places available and boost competition.
But his plans have drawn criticism from academics and opposition politicians who fear that it could lead to a fall in the quality of education available, with more learning being carried out online and in non-traditional ways.
Most of the meetings were revealed to the BBC in answer to a parliamentary question from Barry Gardiner MP.
He said the scale of the contact between these for-profit firms and Mr Willetts was "extraordinary and appalling".
In July 2010 Mr Willetts met one firm, the Education Management Corporation (EDMC), which is currently being sued for $11bn by the Department of Justice in the US over its alleged student recruitment practices.
The firm is accused of wrongly using federal education funds to pay bonuses to its student recruiters, a claim it vehemently denies.
Another firm Mr Willetts met, Apollo, has paid out millions of dollars over claims it improperly recruited students to the University of Phoenix.
Although Apollo admitted no liability in a whistleblower case in 2009, it settled saying it wanted to bring "closure to a long-running dispute" and avoid "uncertainty and further expense associated with protracted litigation".
Apollo is the parent company of BPP University College of Professional Studies, which gained university college status last year. It was the first private sector institution to gain this status for more than 30 years.
Vocational degrees
Mr Willetts met representatives of Apollo and BPP in May 2011. He also met BPP as part of wider meetings with higher education providers in December 2010 and January 2011.
A spokesman for BPP said of the meetings: "There was an exchange of views which centred on BPP University College's plans to grow its career-focused degree programmes."
Mr Willetts also met publishing giant Pearson five times. This includes three meetings in close succession in the run-up to the publication of White Paper on higher education in England, which pledged to "make it easier for new providers to enter the sector".
Mr Willetts, who spoke at a Pearson event in May 2010 about the future of higher education, also plans to allocate 20,000 places to degree course providers charging less than £7,500 a year.
These are expected to be mainly from further education colleges and the private providers, and have widely been seen as a means of addressing the fact that so many universities plan top-price fees of £9,000 a year.
Pearson, one of the world's biggest publishers, has made no secret of its plans to seek degree-awarding powers in England's education system.
After a meeting with Mr Willetts in December 2010, the firm announced that it was planning to start by offering four vocational degrees with a further education college at "very competitive" prices. These will be piloted from September 2012, when the new fees system beings.
It also said in June that it would be offering degrees in conjunction with Royal Holloway, part of the University of London, which would be the validating partner.
But it is still pursuing its aim of gaining degree-awarding powers itself, potentially working as a validating partner for England's further education colleges.
Continue reading the main story “Start QuoteThese are not chance meetings; they are ideologically driven ”
End Quote Barry Gardiner MP
A Pearson spokesman said: "Pearson provides and develops qualifications including BTecs, A-Levels and GCSEs as well as publishing support materials and offering technology products for schools, colleges and universities.
"As part of this work, we meet with teachers, education stakeholders and government representatives to discuss our plans and share ideas."
Mr Willetts also met a firm called Laureate, which has 55 higher education institutions in 27 countries. In England it runs online masters and doctoral degree courses accredited by the University of Liverpool.
A spokesman for the Department for Business, Innovation and Skills said its ministers complied with the rules regarding disclosure of their meetings.
"In the run-up to the publication of the higher education White Paper David Willetts spoke to higher education providers of all types," he added.
'Fraught with danger'
But Mr Gardiner, Labour MP for Brent North, said: "The fact that there have been at least 12 meetings just shows what the focus of the higher education minister is with private sector providers and undermining the existing public sector provision. This is not what he should be focusing on.
"These are not chance meetings; they are ideologically driven meetings about what this government sees as the future of higher education on this country.
"It is not a pretty sight and it is not what the British people recognise. They want to Americanise the system."
General secretary of the UCU lecturers' union Sally Hunt said: "Events in America have shown the for-profit model is fraught with danger for students and taxpayers alike.
"Rather than meeting with the privateers, we believe the government should tighten up existing regulations and abandon any proposals that would further encourage for-profit companies in the UK.
"The companies being sued and investigated by the US Congress are the very same ones who are now eyeing up the UK."
Showing posts with label Education Development Management Corporation. Show all posts
Showing posts with label Education Development Management Corporation. Show all posts
Wednesday, October 5, 2011
Thursday, August 11, 2011
U. S. Department of Justice sues nation's 2nd largest for-profit college
The Department of Justice and four states on Monday filed a multibillion-dollar fraud suit against the Education Development Management Corporation (EDMC), 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.
An EDMC subsidiary,the Art Institute of Wisconsin, recently began operations in Milwaukee's Third Ward, in close proximity to the Milwaukee Institute of Art and Design (MIAD). It is one of several for-profit colleges, including the notorious Everest College, that have recently opened branches in the city.
The Art Institute of Wisconsin anchored a controversial development that received $6.5 million in federal New Market tax credits from the Milwaukee Economic Development Corporation. I had written a letter in opposition to subsidizing this development with New Market tax credits because they are designed to promote development in poor communities, not gentrified areas like the Third Ward, and because of the large number of lawsuits against EDMC alleging unscrupulous business practices.
While the civil lawsuit filed earlier this week is one of many raising similar charges against the expanding for-profit college industry, the case is the first in which the government intervened to back whistle-blowers’ claims that a company consistently violated federal law by paying recruiters based on how many students it enrolled. The suit said that each year, Education Management falsely certified that it was complying with the law, making it eligible to receive student financial aid.
“The depth and breadth of the fraud laid out in the complaint are astonishing,” said Harry Litman, a lawyer in Pittsburgh and former federal prosecutor who is one of those representing the two whistle-blowers whose 2007 complaints spurred the suit. “It spans the entire company — from the ground level in over 100 separate institutions up to the most senior management — and accounts for nearly all the revenues the company has realized since 2003.”
Education Management, which is based in Pittsburgh and is 41 percent owned by Goldman Sachs, enrolls about 150,000 students in 105 schools operating under four names: Art Institute, Argosy University, Brown Mackie College and South University.
For more information go to this link.
An EDMC subsidiary,the Art Institute of Wisconsin, recently began operations in Milwaukee's Third Ward, in close proximity to the Milwaukee Institute of Art and Design (MIAD). It is one of several for-profit colleges, including the notorious Everest College, that have recently opened branches in the city.
The Art Institute of Wisconsin anchored a controversial development that received $6.5 million in federal New Market tax credits from the Milwaukee Economic Development Corporation. I had written a letter in opposition to subsidizing this development with New Market tax credits because they are designed to promote development in poor communities, not gentrified areas like the Third Ward, and because of the large number of lawsuits against EDMC alleging unscrupulous business practices.
While the civil lawsuit filed earlier this week is one of many raising similar charges against the expanding for-profit college industry, the case is the first in which the government intervened to back whistle-blowers’ claims that a company consistently violated federal law by paying recruiters based on how many students it enrolled. The suit said that each year, Education Management falsely certified that it was complying with the law, making it eligible to receive student financial aid.
“The depth and breadth of the fraud laid out in the complaint are astonishing,” said Harry Litman, a lawyer in Pittsburgh and former federal prosecutor who is one of those representing the two whistle-blowers whose 2007 complaints spurred the suit. “It spans the entire company — from the ground level in over 100 separate institutions up to the most senior management — and accounts for nearly all the revenues the company has realized since 2003.”
Education Management, which is based in Pittsburgh and is 41 percent owned by Goldman Sachs, enrolls about 150,000 students in 105 schools operating under four names: Art Institute, Argosy University, Brown Mackie College and South University.
For more information go to this link.
Wednesday, May 11, 2011
Faculty at For-Profits Allege Constant Pressure to Keep Students Enrolled
The Chronicle of Higher Education reports that faculty at for-profits colleges are under constant pressure to keep students enrolled.
Faculty report that they were pressured to ignore plagiarism and inflate grades to keep enrollments high and federal funds, the source of up to 90% of for-profit college revenues, flowing. Not surprisingly Corinthian College's trade school, Everest College, and the Educational Development Management Corporation's (EDMC) Art Institutes are two of the diploma mills whose practices are scrutinized in this front page expose. Both recently opened operations in Milwaukee.
Kelly Field writes:
In interviews with The Chronicle and lawsuits filed around the country, more than a dozen current and former professors from six of the seven largest publicly traded education companies say they were leaned on to dumb down courses, offer lengthy extensions, and change failing grades. They describe a system in which expectations are low, cheating is tolerated, and faculty are under tremendous pressure to keep students enrolled.
"We were supposed to keep students in the classroom by any means necessary," says Luccia Rogers, a former professor at Career Education Corporation's Collins College, who says the college fudged grades and forgave repeated plagiarism—claims that the college denies. "It was all about keeping people in the seats to keep the federal money coming in."
In interviews with The Chronicle, current and former professors from a wide range of for-profit colleges said they were pressured—and in some cases ordered—to offer extensions, forgive plagiarism, and inflate grades to keep students enrolled and the federal aid flowing.
Kate M. Burkes, who has taught online courses for the University of Phoenix, said plagiarism is widespread at the college. She said she reported one student for plagiarism seven times.
Faculty complaints about grade changes are widespread in the for-profit sector. In recent years, faculty members from several for-profit colleges have filed lawsuits alleging that they had been fired after reporting altered grades or refusing to raise grades. Two such lawsuits are pending against ITT Educational Services, which paid $725,000 to California in 2005 to reimburse the state for Cal Grants awarded to academically ineligible students. The payment settled the state's portion of a lawsuit filed by two former employees that accused the company of falsifying grades to qualify the students for the grants, a claim the company denied.
At some for-profit companies, the link between faculty compensation and retention is explicit. The American Public University System pays adjunct faculty members by the student rather than the course, offering $130 per student in undergraduate courses and $150 per student in graduate courses. But students must complete 60 percent of the class for the faculty member to receive the full amount; if a student drops the course before then, the professor gets only 45 percent of the fee, or $58.50 for an undergraduate. Full-time faculty, which make up a quarter of the total, receive a salary.
At Everest College Phoenix online, 15 percent of a professor's evaluation is based on his or her efforts to track down absent and at-risk students to offer "assistance and encouragement."
Some campuses of Heald College base 20 percent of each faculty evaluation on "student outcomes," a category that takes into account student surveys as well as retention and pass rates. The target rate for each is 85 percent, according to Ayn Embar-Seddon O'Reilly, an instructor who has taught online courses for both Everest College Phoenix and Heald. She says professors with high retention and pass rates are rewarded with pay raises and additional classes.
Both colleges are owned by Corinthian Colleges Inc, which enrolls 102,000 students at 120 campuses in the United States and Canada.
The entire expose is linked here.
Faculty report that they were pressured to ignore plagiarism and inflate grades to keep enrollments high and federal funds, the source of up to 90% of for-profit college revenues, flowing. Not surprisingly Corinthian College's trade school, Everest College, and the Educational Development Management Corporation's (EDMC) Art Institutes are two of the diploma mills whose practices are scrutinized in this front page expose. Both recently opened operations in Milwaukee.
Kelly Field writes:
In interviews with The Chronicle and lawsuits filed around the country, more than a dozen current and former professors from six of the seven largest publicly traded education companies say they were leaned on to dumb down courses, offer lengthy extensions, and change failing grades. They describe a system in which expectations are low, cheating is tolerated, and faculty are under tremendous pressure to keep students enrolled.
"We were supposed to keep students in the classroom by any means necessary," says Luccia Rogers, a former professor at Career Education Corporation's Collins College, who says the college fudged grades and forgave repeated plagiarism—claims that the college denies. "It was all about keeping people in the seats to keep the federal money coming in."
In interviews with The Chronicle, current and former professors from a wide range of for-profit colleges said they were pressured—and in some cases ordered—to offer extensions, forgive plagiarism, and inflate grades to keep students enrolled and the federal aid flowing.
Kate M. Burkes, who has taught online courses for the University of Phoenix, said plagiarism is widespread at the college. She said she reported one student for plagiarism seven times.
Faculty complaints about grade changes are widespread in the for-profit sector. In recent years, faculty members from several for-profit colleges have filed lawsuits alleging that they had been fired after reporting altered grades or refusing to raise grades. Two such lawsuits are pending against ITT Educational Services, which paid $725,000 to California in 2005 to reimburse the state for Cal Grants awarded to academically ineligible students. The payment settled the state's portion of a lawsuit filed by two former employees that accused the company of falsifying grades to qualify the students for the grants, a claim the company denied.
At some for-profit companies, the link between faculty compensation and retention is explicit. The American Public University System pays adjunct faculty members by the student rather than the course, offering $130 per student in undergraduate courses and $150 per student in graduate courses. But students must complete 60 percent of the class for the faculty member to receive the full amount; if a student drops the course before then, the professor gets only 45 percent of the fee, or $58.50 for an undergraduate. Full-time faculty, which make up a quarter of the total, receive a salary.
At Everest College Phoenix online, 15 percent of a professor's evaluation is based on his or her efforts to track down absent and at-risk students to offer "assistance and encouragement."
Some campuses of Heald College base 20 percent of each faculty evaluation on "student outcomes," a category that takes into account student surveys as well as retention and pass rates. The target rate for each is 85 percent, according to Ayn Embar-Seddon O'Reilly, an instructor who has taught online courses for both Everest College Phoenix and Heald. She says professors with high retention and pass rates are rewarded with pay raises and additional classes.
Both colleges are owned by Corinthian Colleges Inc, which enrolls 102,000 students at 120 campuses in the United States and Canada.
The entire expose is linked here.
Tuesday, May 3, 2011
U.S. to Join Suit Against For-Profit College Chain
The Justice Department plans to intervene in a whistle-blower lawsuit charging that one of the nation’s largest for-profit college companies, the Education Management Corporation (EDMC), defrauded the government by illegally paying recruiters based on the number of students they enrolled, according to a Securities and Exchange Commission filing on Monday.
An EDMC affiliated college, the Art Institute of Wisconsin, recently began operations in Milwaukee's Third Ward, in close proximity to the Milwaukee Institute of Art and Design (MIAD). It is one of several for-profit colleges, including Everest College, that have recently opened branches in the city.
The Art Institute anchored a controversial development that received $6.5 million in federal New Market tax credits from the Milwaukee Economic Development Corporation. I had written a letter in opposition to subsidizing this development with New Market tax credits because they are designed to promote development in poor communities, not gentrified areas like the Third Ward, and because of the large number of lawsuits against EDMC alleging unscrupulous business practices.
The Security and Exchange Commission filing by Education Management, known as EDMC, said “several states” also planned to join in the False Claims Act case, in federal court in Pittsburgh, alleging violations of their state laws.
According to the New York Times' Tamar Lewin:
This is the first time prosecutors have joined such a case, one of dozens in recent years that accuse the for-profit college industry of illegal practices devised to increase federal student aid revenue.
The company, which enrolls nearly 150,000 students, operates several career-college chains, including the Art Institute, Argosy University, Brown Mackie College and South University.
EDMC, 40 percent of which is owned by Goldman Sachs, said in its securities filing that its compensation plan for recruiters did not violate the law, and that it would “vigorously defend itself.”
In federal whistle-blower, or qui tam, suits filed under the False Claims Act, private citizens file fraud complaints on behalf of the federal government, seeking to recover public money that was wrongly paid out. The lawsuits are filed under seal, giving the government an opportunity to investigate and decide whether to intervene, so the one against EDMC has yet to be made public.
Some such suits have been settled for significant amounts of money. In 2009, Apollo Group, which operates the University of Phoenix, the largest chain of for-profit colleges, agreed to pay $78.5 million to settle one.
For-profit schools enroll about 12 percent of the nation’s higher-education students yet receive about a quarter of all federal student aid; their students account for almost half of all defaults. In general, these institutions get more than 80 percent of their revenues from federal student aid.
The United States Department of Education and Senator Tom Harkin, an Iowa Democrat who is the chairman of the Health, Education, Labor and Pensions Committee, have become concerned in recent years that such colleges too often leave their students with mountains of debt and no marketable job skills.
The Education Department has taken action to rein in abuses by the for-profit sector but has so far delayed the most controversial regulation it has proposed, the “gainful employment” rule that would cut off federal aid to programs whose graduates have high debt loads and not enough income to pay them.
The for-profit schools are lobbying intensely against the rule, and last week more than 100 members of Congress wrote to President Obama asking that his administration drop the gainful employment rule, which they say would cut off access to higher education for many poor minority students.
Supporters of the rule say it would not harm poor students but rather protect them from taking out large loans to enroll in expensive programs that would not lead to good jobs.
An EDMC affiliated college, the Art Institute of Wisconsin, recently began operations in Milwaukee's Third Ward, in close proximity to the Milwaukee Institute of Art and Design (MIAD). It is one of several for-profit colleges, including Everest College, that have recently opened branches in the city.
The Art Institute anchored a controversial development that received $6.5 million in federal New Market tax credits from the Milwaukee Economic Development Corporation. I had written a letter in opposition to subsidizing this development with New Market tax credits because they are designed to promote development in poor communities, not gentrified areas like the Third Ward, and because of the large number of lawsuits against EDMC alleging unscrupulous business practices.
The Security and Exchange Commission filing by Education Management, known as EDMC, said “several states” also planned to join in the False Claims Act case, in federal court in Pittsburgh, alleging violations of their state laws.
According to the New York Times' Tamar Lewin:
This is the first time prosecutors have joined such a case, one of dozens in recent years that accuse the for-profit college industry of illegal practices devised to increase federal student aid revenue.
The company, which enrolls nearly 150,000 students, operates several career-college chains, including the Art Institute, Argosy University, Brown Mackie College and South University.
EDMC, 40 percent of which is owned by Goldman Sachs, said in its securities filing that its compensation plan for recruiters did not violate the law, and that it would “vigorously defend itself.”
In federal whistle-blower, or qui tam, suits filed under the False Claims Act, private citizens file fraud complaints on behalf of the federal government, seeking to recover public money that was wrongly paid out. The lawsuits are filed under seal, giving the government an opportunity to investigate and decide whether to intervene, so the one against EDMC has yet to be made public.
Some such suits have been settled for significant amounts of money. In 2009, Apollo Group, which operates the University of Phoenix, the largest chain of for-profit colleges, agreed to pay $78.5 million to settle one.
For-profit schools enroll about 12 percent of the nation’s higher-education students yet receive about a quarter of all federal student aid; their students account for almost half of all defaults. In general, these institutions get more than 80 percent of their revenues from federal student aid.
The United States Department of Education and Senator Tom Harkin, an Iowa Democrat who is the chairman of the Health, Education, Labor and Pensions Committee, have become concerned in recent years that such colleges too often leave their students with mountains of debt and no marketable job skills.
The Education Department has taken action to rein in abuses by the for-profit sector but has so far delayed the most controversial regulation it has proposed, the “gainful employment” rule that would cut off federal aid to programs whose graduates have high debt loads and not enough income to pay them.
The for-profit schools are lobbying intensely against the rule, and last week more than 100 members of Congress wrote to President Obama asking that his administration drop the gainful employment rule, which they say would cut off access to higher education for many poor minority students.
Supporters of the rule say it would not harm poor students but rather protect them from taking out large loans to enroll in expensive programs that would not lead to good jobs.
Wednesday, March 30, 2011
Everest, Kaplan, Phoenix and Education Development Management Corp under investigation
Florida is investigating five private, for-profit colleges, several of which have operations in Milwaukee, to determine if they've engaged in unfair or deceptive practices in recruitment and other areas, the state attorney general's office said Friday.
The office is also looking into whether the colleges misled students about financial aid, the main source of revenue for these institutiions.
Ryan Wiggins, a spokeswoman for Attorney General Bill McCollum, confirmed Friday his office was conducting a civil investigation.
Wiggins said the investigation began in response to consumer complaints and a federal report that accused some for-profit schools of encouraging fraud and engaging in deceptive marketing practices.
"It's all in its infancy right now," Wiggins said. She said officials are unsure how long the civil investigation will take.
According to McCollum's office, the colleges being examined are Kaplan Inc. of Alpharetta, Ga.; University of Phoenix Inc. of Arizona; Argosy University of Florida Inc.; Everest College, a subsidiary of Corinthian Colleges Inc. of Santa Ana, Calif., and Medvance Institute Inc., of Miami.
There is more information linked here.
The office is also looking into whether the colleges misled students about financial aid, the main source of revenue for these institutiions.
Ryan Wiggins, a spokeswoman for Attorney General Bill McCollum, confirmed Friday his office was conducting a civil investigation.
Wiggins said the investigation began in response to consumer complaints and a federal report that accused some for-profit schools of encouraging fraud and engaging in deceptive marketing practices.
"It's all in its infancy right now," Wiggins said. She said officials are unsure how long the civil investigation will take.
According to McCollum's office, the colleges being examined are Kaplan Inc. of Alpharetta, Ga.; University of Phoenix Inc. of Arizona; Argosy University of Florida Inc.; Everest College, a subsidiary of Corinthian Colleges Inc. of Santa Ana, Calif., and Medvance Institute Inc., of Miami.
There is more information linked here.
Monday, January 24, 2011
For-profit colleges sue U.S. to stop rules protecting students
By Diane Bartz Diane Bartz – Fri Jan 21, 2011
A group of for-profit schools sued the U.S. government on Friday, seeking to overturn three rules that are part of a federal crackdown on the sector.
The rules are part of a larger package of new regulations being imposed on for-profit schools, accused of churning out poorly educated students with large debts.
The Association of Private Sector Colleges and Universities (APSCU), which represents more than 1,500 for-profit schools, filed the lawsuit in the U.S. District Court for the District of Columbia. It asked the court to toss out the rules, which are due to go into effect on July 1.
One rule challenged by the suit would stop deceptive advertising by schools, another bars recruiters from being paid based on how many students they enroll and a third requires states to authorize post-secondary schools for their students to be eligible for federal loans.
The lawsuit did not challenge the yet-to-be-finalized and most controversial of the reforms -- the "gainful employment" rule.
That rule would require schools to show that students are paying back federal loans or can do so. Students at schools that fall short would be barred from receiving federal loans, which would cripple many schools.
APSCU members include Career Education Corp, which owns the Sanford-Brown schools; Corinthian Colleges, DeVry Inc; Education Management Corp; ITT Educational Services; and Lincoln Educational Services.
The pending reforms have rocked shares in the sector over the past few months and Friday's suit failed to give the overall sector a lift. The Standard & Poor's education index closed 1.1 percent lower on Friday.
Shares of sector leader Apollo Group, which does not belong to APSCU, fell 2 percent.
Harris Miller, head of the trade group, said the rule barring misrepresentation by the schools was poorly done so that inadvertent misstatements by a single employee would be treated the same as intentional deception.
"We certainly oppose any misrepresentation to any actual or potential students," he said.
The Education Department defended the rules.
"We're confident that the published regulations will do the best job of protecting students and taxpayers," said department spokesman Justin Hamilton in an emailed statement.
Sector analyst Jeff Silber of BMO Capital Markets said the lawsuit was not a surprise since schools had been threatening to file suit.
"But it shows the industry is using all angles to try and fight this. I wouldn't be surprised to see the same strategy used once the final gainful employment regulations are posted," he said in an emailed comment.
The prospect of the rules has already roiled the sector as some schools tighten enrollment standards in a move to push down their loan default rates and increase graduation rates.
On Thursday, Career Education said it would cut about 600 jobs over the next several months and close a culinary school in Pittsburgh because of lower enrollment.
Apollo cut about 700 jobs in late November amid a 40 percent drop in new enrollments at its flagship University of Phoenix. Washington Post's education unit, Kaplan Higher Education, slashed about 770 positions.
(Reporting by Diane Bartz; Editing by Andre Grenon and Tim Dobbyn)
A group of for-profit schools sued the U.S. government on Friday, seeking to overturn three rules that are part of a federal crackdown on the sector.
The rules are part of a larger package of new regulations being imposed on for-profit schools, accused of churning out poorly educated students with large debts.
The Association of Private Sector Colleges and Universities (APSCU), which represents more than 1,500 for-profit schools, filed the lawsuit in the U.S. District Court for the District of Columbia. It asked the court to toss out the rules, which are due to go into effect on July 1.
One rule challenged by the suit would stop deceptive advertising by schools, another bars recruiters from being paid based on how many students they enroll and a third requires states to authorize post-secondary schools for their students to be eligible for federal loans.
The lawsuit did not challenge the yet-to-be-finalized and most controversial of the reforms -- the "gainful employment" rule.
That rule would require schools to show that students are paying back federal loans or can do so. Students at schools that fall short would be barred from receiving federal loans, which would cripple many schools.
APSCU members include Career Education Corp, which owns the Sanford-Brown schools; Corinthian Colleges, DeVry Inc; Education Management Corp; ITT Educational Services; and Lincoln Educational Services.
The pending reforms have rocked shares in the sector over the past few months and Friday's suit failed to give the overall sector a lift. The Standard & Poor's education index closed 1.1 percent lower on Friday.
Shares of sector leader Apollo Group, which does not belong to APSCU, fell 2 percent.
Harris Miller, head of the trade group, said the rule barring misrepresentation by the schools was poorly done so that inadvertent misstatements by a single employee would be treated the same as intentional deception.
"We certainly oppose any misrepresentation to any actual or potential students," he said.
The Education Department defended the rules.
"We're confident that the published regulations will do the best job of protecting students and taxpayers," said department spokesman Justin Hamilton in an emailed statement.
Sector analyst Jeff Silber of BMO Capital Markets said the lawsuit was not a surprise since schools had been threatening to file suit.
"But it shows the industry is using all angles to try and fight this. I wouldn't be surprised to see the same strategy used once the final gainful employment regulations are posted," he said in an emailed comment.
The prospect of the rules has already roiled the sector as some schools tighten enrollment standards in a move to push down their loan default rates and increase graduation rates.
On Thursday, Career Education said it would cut about 600 jobs over the next several months and close a culinary school in Pittsburgh because of lower enrollment.
Apollo cut about 700 jobs in late November amid a 40 percent drop in new enrollments at its flagship University of Phoenix. Washington Post's education unit, Kaplan Higher Education, slashed about 770 positions.
(Reporting by Diane Bartz; Editing by Andre Grenon and Tim Dobbyn)
Sunday, November 14, 2010
For-profit college presidents make billions while default rates soar and graduation rates fall
Strayer Education Inc., a chain of for-profit colleges that receives three-quarters of its revenue from U.S. taxpayers, paid Chairman and Chief Executive Officer Robert Silberman $41.9 million last year. That’s 26 times the compensation of the highest-paid president of a traditional university.
Top executives at the 15 U.S. publicly traded for-profit colleges, led by Apollo Group Inc. (Phoenix University) and Education Management Corp. (the Arts Institute of Wisconsin), also received $2 billion during the last seven years from the proceeds of selling company stock. At the same time, the industry registered the worst loan-default and four-year-college dropout rates in U.S. higher education. Since 2003, nine for-profit college insiders sold more than $45 million of stock apiece. Peter Sperling, vice chairman of Apollo’s University of Phoenix, the largest for-profit college, collected $574.3 million.
Education corporations, which receive as much as 90 percent of their revenue from federal financial-aid programs, are “private enterprise that’s almost entirely publicly funded,” Henry Levin, director of Columbia University’s National Center for the Study of Privatization in Education, said in a telephone interview.
While there is a growing movement that bases teacher compensation on student acheivement, for profit college CEO pay has no discernable relationship to student performance.
Students at for-profit colleges are defaulting on their loans at three times the rate of those at private, nonprofit institutions, according to data from the U.S. Department of Education, which is tightening regulation of the industry. The graduation rate for first-time, full-time candidates for four- year degrees at for-profit colleges is 22 percent, compared with 55 percent at state colleges and 65 percent at private nonprofit universities.
‘Public Trough’
“For-profit colleges are reaching into the public trough to finance luxurious lifestyles at the expense of people who are going to have to pay back loans,” said Levin, a professor at Columbia University’s Teachers College in New York.
John G. Sperling, Apollo’s 89-year-old founder and executive chairman, received $263.5 million from stock sales during the last seven years. Robert B. Knutson, retired CEO and chairman of Pittsburgh-based Education Management, the second- largest for-profit college chain by enrollment, got $132.4 million. Dennis Keller and Ronald Taylor, former co-CEOs of DeVry Inc., a Downers Grove, Illinois-based for-profit higher education company, together collected $110.4 million in stock proceeds.
For more read the Bloomberg News investigative report, Executives Collect $2 Billion Running U.S. For-Profit Colleges, by John Hechinger and John Lauerman.
Top executives at the 15 U.S. publicly traded for-profit colleges, led by Apollo Group Inc. (Phoenix University) and Education Management Corp. (the Arts Institute of Wisconsin), also received $2 billion during the last seven years from the proceeds of selling company stock. At the same time, the industry registered the worst loan-default and four-year-college dropout rates in U.S. higher education. Since 2003, nine for-profit college insiders sold more than $45 million of stock apiece. Peter Sperling, vice chairman of Apollo’s University of Phoenix, the largest for-profit college, collected $574.3 million.
Education corporations, which receive as much as 90 percent of their revenue from federal financial-aid programs, are “private enterprise that’s almost entirely publicly funded,” Henry Levin, director of Columbia University’s National Center for the Study of Privatization in Education, said in a telephone interview.
While there is a growing movement that bases teacher compensation on student acheivement, for profit college CEO pay has no discernable relationship to student performance.
Students at for-profit colleges are defaulting on their loans at three times the rate of those at private, nonprofit institutions, according to data from the U.S. Department of Education, which is tightening regulation of the industry. The graduation rate for first-time, full-time candidates for four- year degrees at for-profit colleges is 22 percent, compared with 55 percent at state colleges and 65 percent at private nonprofit universities.
‘Public Trough’
“For-profit colleges are reaching into the public trough to finance luxurious lifestyles at the expense of people who are going to have to pay back loans,” said Levin, a professor at Columbia University’s Teachers College in New York.
John G. Sperling, Apollo’s 89-year-old founder and executive chairman, received $263.5 million from stock sales during the last seven years. Robert B. Knutson, retired CEO and chairman of Pittsburgh-based Education Management, the second- largest for-profit college chain by enrollment, got $132.4 million. Dennis Keller and Ronald Taylor, former co-CEOs of DeVry Inc., a Downers Grove, Illinois-based for-profit higher education company, together collected $110.4 million in stock proceeds.
For more read the Bloomberg News investigative report, Executives Collect $2 Billion Running U.S. For-Profit Colleges, by John Hechinger and John Lauerman.
Thursday, October 14, 2010
For-profit stocks tumble
By TALI ARBEL and JANNA HERRON AP Business Writers
NEW YORK (AP) -- Investors fled for-profit college stocks on Thursday after the sector's bellwether predicted a 40-percent drop in student enrollment next quarter and withdrew its forecast for next year. The news chilled an industry facing increased government scrutiny over concerns about soaring student loan defaults.
Enrollments at for-profit schools surged during the recession. Big advertising budgets drew students trying to bolster their resumes as a hedge against high unemployment. But critics claim the schools are not helping students find better jobs and say enrollment counselors sign up many students who are unprepared for higher education. When they drop out, they are still stuck paying back their student loans.
Apollo Group Inc., which runs the University of Phoenix, attributes its expected enrollment decline to changing practices aimed at satisfying new government regulations. Apollo will no longer pay its counselors bonuses based on how many students they enroll. It also will provide new students with a free three-week trial program to see if they are ready for school, weeding out those at risk of leaving school before earning degrees.
Meanwhile, the industry is facing a proposed new rule from the Department of Education that could limit schools' access to federal financial aid - the bulk of their revenue - if graduates' debt levels are too high or too few students repay loans.
And, many schools are close to maxing out how much revenue they can receive from federal financial aid resources. Federal regulations cap that amount at 90 percent. The industry averages 83 percent, largely because they focus on recruiting lower-income students who qualify for federal Pell Grants.
"Now, they have to slow down enrollment and be less active in targeting these students. They have to go back to the more traditional students who are working adults," said Matt Snowling, an analyst at FBR Capital Markets.
In afternoon trading, shares of Apollo tumbled $12.64, or 26 percent, to $36.86. The rest of the sector followed suit.
Education Management Corp. shares lost $2.70, or 20 percent, to $10.57. DeVry Inc. fell $8.67, or 17 percent, to $41.90; Corinthian Colleges Inc. decreased $1.16, or 19 percent, to $4.86; ITT Educational Services Inc. dropped $10.58, or 16 percent, to $55.34; Career Education fell $3.29, or 16 percent, to $16.898; Strayer Education Inc. declined $21.21, or 14 percent, to $135.84.
NEW YORK (AP) -- Investors fled for-profit college stocks on Thursday after the sector's bellwether predicted a 40-percent drop in student enrollment next quarter and withdrew its forecast for next year. The news chilled an industry facing increased government scrutiny over concerns about soaring student loan defaults.
Enrollments at for-profit schools surged during the recession. Big advertising budgets drew students trying to bolster their resumes as a hedge against high unemployment. But critics claim the schools are not helping students find better jobs and say enrollment counselors sign up many students who are unprepared for higher education. When they drop out, they are still stuck paying back their student loans.
Apollo Group Inc., which runs the University of Phoenix, attributes its expected enrollment decline to changing practices aimed at satisfying new government regulations. Apollo will no longer pay its counselors bonuses based on how many students they enroll. It also will provide new students with a free three-week trial program to see if they are ready for school, weeding out those at risk of leaving school before earning degrees.
Meanwhile, the industry is facing a proposed new rule from the Department of Education that could limit schools' access to federal financial aid - the bulk of their revenue - if graduates' debt levels are too high or too few students repay loans.
And, many schools are close to maxing out how much revenue they can receive from federal financial aid resources. Federal regulations cap that amount at 90 percent. The industry averages 83 percent, largely because they focus on recruiting lower-income students who qualify for federal Pell Grants.
"Now, they have to slow down enrollment and be less active in targeting these students. They have to go back to the more traditional students who are working adults," said Matt Snowling, an analyst at FBR Capital Markets.
In afternoon trading, shares of Apollo tumbled $12.64, or 26 percent, to $36.86. The rest of the sector followed suit.
Education Management Corp. shares lost $2.70, or 20 percent, to $10.57. DeVry Inc. fell $8.67, or 17 percent, to $41.90; Corinthian Colleges Inc. decreased $1.16, or 19 percent, to $4.86; ITT Educational Services Inc. dropped $10.58, or 16 percent, to $55.34; Career Education fell $3.29, or 16 percent, to $16.898; Strayer Education Inc. declined $21.21, or 14 percent, to $135.84.
Wednesday, September 8, 2010
For-Profit Colleges Step Up Lobbying Against New Rules
The New York Times' Tamar Lewin reports:
For-profit colleges have increased their lobbying against proposed Education Department rules to cut off federal financial aid to programs whose students take on too much debt for training that provides little likelihood of leading to a well-paying job.
In addition to making personal visits to Capitol Hill, executives at the colleges have provided employees with “personalized” letters to send to Washington and urged students to speak out against the proposals.
So far, the department has received about 45,000 letters on the proposed “gainful employment” regulations, in the comment period that ends Thursday.
Last week, John Sperling, the founder of the nation’s largest for-profit college, the University of Phoenix, e-mailed every member of Congress, seeking help opposing the regulations, and attached a sample letter to be sent to Education Secretary Arne Duncan, asking him to withdraw them.
Donald Graham, the chairman and chief executive of The Washington Post Company, which gets most of its revenue from its Kaplan education business, visited Senator Tom Harkin, Democrat of Iowa, whose Health, Education, Labor and Pensions Committee is holding hearings on the for-profit education industry.
Under the proposed regulations, announced July 23, for-profit education programs would qualify for federal student aid only if enough former students were repaying their student loans, or if graduates generally earned enough to repay their debts.
Many for-profit colleges have urged students, professors and administrators to send in criticisms of the proposals.
The Education Management Corporation (owned by Goldman Sachs), the second-largest for-profit company, hired DCI Group, a public relations firm, to contact its employees for information that would be used to create a personalized letter, which would then be delivered back to the employee for signature, along with a stamped, addressed envelope.
“EDMC believes it is important, that during this public-comment period on the proposed Federal Gainful Employment Rule, that our students, faculty and staff have the opportunity to voice their opinion, if they choose to do so,” said Jacquelyn Muller, a spokeswoman for the company.
EDMC also has a Web site, the Higher Education Action Center, guiding students or employees to oppose the regulations, offering “pre-crafted” letters. Argosy, a unit of EDMC, said last month in an e-mail soliciting more comments that more than 2,000 people had used the site in the previous week. It is unclear how many comments were generated by for-profit colleges’ campaigns.
Some of the letters show little familiarity with the proposed regulations. For example, a Education Department official said, students at a particular school sent in dozens of hand-written letters asking for continued aid to for-profit colleges, but never mentioning the regulations. He said he called a letter-writer to ask whether the letter was intended as a comment on the regulations, and was told, “This is what the school asked us to write.” He would not identify the school.
The department said the new regulations would protect students from programs that saddled them with heavy debts and gave them credentials that proved to be of little value in finding a good job.
Last month, the Government Accountability Office said an investigation found fraud or deceptive practices at all 15 of the for-profit locations it visited.
Students at for-profit colleges, about 10 percent of those enrolled in higher education, are far more likely to default on their loans.
For-profit colleges have increased their lobbying against proposed Education Department rules to cut off federal financial aid to programs whose students take on too much debt for training that provides little likelihood of leading to a well-paying job.
In addition to making personal visits to Capitol Hill, executives at the colleges have provided employees with “personalized” letters to send to Washington and urged students to speak out against the proposals.
So far, the department has received about 45,000 letters on the proposed “gainful employment” regulations, in the comment period that ends Thursday.
Last week, John Sperling, the founder of the nation’s largest for-profit college, the University of Phoenix, e-mailed every member of Congress, seeking help opposing the regulations, and attached a sample letter to be sent to Education Secretary Arne Duncan, asking him to withdraw them.
Donald Graham, the chairman and chief executive of The Washington Post Company, which gets most of its revenue from its Kaplan education business, visited Senator Tom Harkin, Democrat of Iowa, whose Health, Education, Labor and Pensions Committee is holding hearings on the for-profit education industry.
Under the proposed regulations, announced July 23, for-profit education programs would qualify for federal student aid only if enough former students were repaying their student loans, or if graduates generally earned enough to repay their debts.
Many for-profit colleges have urged students, professors and administrators to send in criticisms of the proposals.
The Education Management Corporation (owned by Goldman Sachs), the second-largest for-profit company, hired DCI Group, a public relations firm, to contact its employees for information that would be used to create a personalized letter, which would then be delivered back to the employee for signature, along with a stamped, addressed envelope.
“EDMC believes it is important, that during this public-comment period on the proposed Federal Gainful Employment Rule, that our students, faculty and staff have the opportunity to voice their opinion, if they choose to do so,” said Jacquelyn Muller, a spokeswoman for the company.
EDMC also has a Web site, the Higher Education Action Center, guiding students or employees to oppose the regulations, offering “pre-crafted” letters. Argosy, a unit of EDMC, said last month in an e-mail soliciting more comments that more than 2,000 people had used the site in the previous week. It is unclear how many comments were generated by for-profit colleges’ campaigns.
Some of the letters show little familiarity with the proposed regulations. For example, a Education Department official said, students at a particular school sent in dozens of hand-written letters asking for continued aid to for-profit colleges, but never mentioning the regulations. He said he called a letter-writer to ask whether the letter was intended as a comment on the regulations, and was told, “This is what the school asked us to write.” He would not identify the school.
The department said the new regulations would protect students from programs that saddled them with heavy debts and gave them credentials that proved to be of little value in finding a good job.
Last month, the Government Accountability Office said an investigation found fraud or deceptive practices at all 15 of the for-profit locations it visited.
Students at for-profit colleges, about 10 percent of those enrolled in higher education, are far more likely to default on their loans.
Wednesday, June 16, 2010
For-profit college regulations advance without gainful employment rule
The Chronicle of Higher Education reports that most of the Education Department's proposals to regulate for-profit colleges like Corinthian and the Education Development Management Corporation will move forward.
But the "gainful employment" regulation designed to protect students from crushing loads of debt, the focus of a multi-million dollar lobbying campaign by proprietory institutions, was not included in the package of reforms.
The for-profits argue that tying student aid to student debt loads and incomes would force many of them to close their doors.
But the goal of the rule is to protect students from taking on debts they have no possibility of paying back.
If the only way for-profit institutions can stay open is by deceiving students into enrolling in costly programs that do not lead to family supporting incomes, they should be shut down.
The Chronicle reports:
After an intense lobbying effort by for-profit colleges, the Education Department announced Tuesday that it will postpone the release of a rule that proprietary institutions said would shutter thousands of their programs.
The rule, which would cut off federal student aid to programs whose graduates carry high student-loan debt relative to their incomes, is one of 14 that the department and college stakeholders have been negotiating over the past eight months. The other regulations, including one that would tighten a ban on incentive compensation for college recruiters, will be made public Friday.
In a call with reporters Tuesday, an Education Department official said the agency still plans to hold for-profits accountable for preparing their graduates for "gainful employment," but needs more time to develop an appropriate measure of that outcome. The official said the proposal will be released later this summer, and will most likely be included in a package of final rules due out in November.
"We have many areas of agreement where we can move forward," Arne Duncan, the U.S. secretary of education, said in a statement. "But some key issues around gainful employment are complicated, and we want to get it right, so we will be coming back with that shortly."
The delay gives for-profit colleges more time to fight the department's proposal to bar aid for programs in which a majority of students' loan payments would exceed 8 percent of the lowest quarter of graduates' expected earnings, based on a 10-year repayment plan. The colleges have already spent hundreds of thousands of dollars pushing an alternative that would require programs to provide prospective students with more information about their graduates' debt levels and salaries.
Their lobbying and public-relations blitz has met with mixed success. While the department has not yet abandoned plans to measure graduates' debt-to-income ratios, the rules that will be released Friday would require programs to disclose their graduation and job-placement rates and median debt levels—the approach favored by for-profits.
A Welcome Delay
Trace A. Urdan, an analyst with Signal Hill Capital Group, said the delay in releasing the rest of the rule suggested that "the department has heard the message from industry and Congress, and that there was some overreaching."
"Clearly, trying to gather more data before proceeding is being responsible," he added.
For-profit colleges have complained that the department has refused to release the data it used to justify drafting the rule, and have questioned whether they even exist.
The fight over gainful employment comes amid increased federal scrutiny of the for-profit sector, which educates a growing share of students and is highly dependent on federal student aid. On Thursday, the education committee of the U.S. House of Representatives will hold a hearing to examine whether accrediting agencies are doing enough to ensure that students studying online are getting an adequate amount of instruction for the degrees they earn. The hearing will focus on a recent report by the Education Department's Office of Inspector General that questioned the decision of the Higher Learning Commission of the North Central Association of Colleges and Schools, one of the nation's major regional accrediting organizations, to approve accreditation of American InterContinental University, a for-profit college owned by the Career Education Corporation. The Senate education committee follows with a hearing next week focused on the growth of the for-profit sector and the risks that may pose to taxpayers.
In a statement issued Tuesday, the chairman of the Senate committee praised the proposed rules. "The federal government must ensure that the more than $20-billion in student aid that these schools receive is being well spent and students are being well informed and well served," said Sen. Tom Harkin, Democrat of Iowa. "For-profit colleges must work for students and taxpayers, not just shareholders."
Meanwhile, a top Republican on the panel, Sen. Lamar Alexander, of Tennessee, called the disclosures that would be required by the rules that will be released on Friday "much better than the first approach on gainful employment." Mr. Alexander, a former secretary of education, had threatened to offer an amendment to withhold the funds needed to put the rule into effect if the department followed through with its original proposal.
"Secretary Duncan is focusing on a real problem," he said. "Some students are borrowing too much and not getting enough value for what they are paying."
Tougher Stance on Recruitment
But if the department is showing signs that it may soften its stance on gainful employment, it has dug in its heels on another controversial issue: recruiter compensation. During negotiations over the rules, the department proposed striking a dozen "safe harbors" from a ban on compensating recruiters based on student enrollment. It followed through with that proposal in the rules due out Friday, while promising to provide guidance on what is—and isn't—allowed under the ban.
Congress outlawed incentive compensation in 1992 following reports that some trade institutions were enrolling unqualified students to receive their federal student-aid dollars. By prohibiting commissions, lawmakers hoped to discourage recruiters from signing up students for courses they couldn't handle. Under the law, colleges may not provide "any commission, bonus, or other incentive payment" to recruiters or admissions officers based on their success in securing enrollments or financial aid.
A decade later, the Education Department convened a committee to clarify the rules, which for-profit colleges had long complained were unclear and ambiguous. When the panel disbanded without reaching consensus, the department took action on its own, issuing regulations that outlined the 12 "safe harbors" from the law.
In the years since the safe harbors were created, some of the largest for-profit institutions have come under scrutiny by state and federal regulators, and a number of former recruiters have filed lawsuits under a whistle-blower law, the False Claims Act, that accuse colleges of improperly compensating recruiters. In one of the most high-profile lawsuits, the University of Phoenix recently agreed to pay $67.5-million to settle a False Claims lawsuit filed by two former recruiters.
Pauline Abernathy, vice president for the Institute for College Access & Success, said the changes in the proposed rule "appear to bring the department's policies more in line with federal law banning incentive compensation."
"These loopholes have led to high-pressure and deceptive sales tactics that can leave vulnerable consumers with staggering debt and no way to pay it back," she said.
But Harris N. Miller, president of the Career College Association, said he was disappointed that the department didn't include specific guidance in its rule. "This is going to harm students and make lawyers very happy," he said.
Most of the other regulations in the package to be released on Friday are aimed at protecting students and safeguarding taxpayers' investment in federal student aid. In many cases, the language mirrors agreements reached during the rule-making sessions.
They include rules that would:
Require colleges to evaluate the validity of a student's high-school diploma if either the college or the secretary of education believes that a closer examination of the diploma is warranted.
Strengthen the department's authority to take action against institutions engaging in deceptive advertising, marketing and sales practices.
Clarify the states' responsibility in approving and monitoring postsecondary programs.
Define a credit hour and establish procedures for accrediting agencies to determine whether a college's assignment of a credit hour is acceptable. The proposal also allows for a credit hour to be measured through learning outcomes instead of the customary use of "seat time."
The public will have 45 days to comment on the rules, which are expected to be finalized by November 1 and take effect in July 2011.
But the "gainful employment" regulation designed to protect students from crushing loads of debt, the focus of a multi-million dollar lobbying campaign by proprietory institutions, was not included in the package of reforms.
The for-profits argue that tying student aid to student debt loads and incomes would force many of them to close their doors.
But the goal of the rule is to protect students from taking on debts they have no possibility of paying back.
If the only way for-profit institutions can stay open is by deceiving students into enrolling in costly programs that do not lead to family supporting incomes, they should be shut down.
The Chronicle reports:
After an intense lobbying effort by for-profit colleges, the Education Department announced Tuesday that it will postpone the release of a rule that proprietary institutions said would shutter thousands of their programs.
The rule, which would cut off federal student aid to programs whose graduates carry high student-loan debt relative to their incomes, is one of 14 that the department and college stakeholders have been negotiating over the past eight months. The other regulations, including one that would tighten a ban on incentive compensation for college recruiters, will be made public Friday.
In a call with reporters Tuesday, an Education Department official said the agency still plans to hold for-profits accountable for preparing their graduates for "gainful employment," but needs more time to develop an appropriate measure of that outcome. The official said the proposal will be released later this summer, and will most likely be included in a package of final rules due out in November.
"We have many areas of agreement where we can move forward," Arne Duncan, the U.S. secretary of education, said in a statement. "But some key issues around gainful employment are complicated, and we want to get it right, so we will be coming back with that shortly."
The delay gives for-profit colleges more time to fight the department's proposal to bar aid for programs in which a majority of students' loan payments would exceed 8 percent of the lowest quarter of graduates' expected earnings, based on a 10-year repayment plan. The colleges have already spent hundreds of thousands of dollars pushing an alternative that would require programs to provide prospective students with more information about their graduates' debt levels and salaries.
Their lobbying and public-relations blitz has met with mixed success. While the department has not yet abandoned plans to measure graduates' debt-to-income ratios, the rules that will be released Friday would require programs to disclose their graduation and job-placement rates and median debt levels—the approach favored by for-profits.
A Welcome Delay
Trace A. Urdan, an analyst with Signal Hill Capital Group, said the delay in releasing the rest of the rule suggested that "the department has heard the message from industry and Congress, and that there was some overreaching."
"Clearly, trying to gather more data before proceeding is being responsible," he added.
For-profit colleges have complained that the department has refused to release the data it used to justify drafting the rule, and have questioned whether they even exist.
The fight over gainful employment comes amid increased federal scrutiny of the for-profit sector, which educates a growing share of students and is highly dependent on federal student aid. On Thursday, the education committee of the U.S. House of Representatives will hold a hearing to examine whether accrediting agencies are doing enough to ensure that students studying online are getting an adequate amount of instruction for the degrees they earn. The hearing will focus on a recent report by the Education Department's Office of Inspector General that questioned the decision of the Higher Learning Commission of the North Central Association of Colleges and Schools, one of the nation's major regional accrediting organizations, to approve accreditation of American InterContinental University, a for-profit college owned by the Career Education Corporation. The Senate education committee follows with a hearing next week focused on the growth of the for-profit sector and the risks that may pose to taxpayers.
In a statement issued Tuesday, the chairman of the Senate committee praised the proposed rules. "The federal government must ensure that the more than $20-billion in student aid that these schools receive is being well spent and students are being well informed and well served," said Sen. Tom Harkin, Democrat of Iowa. "For-profit colleges must work for students and taxpayers, not just shareholders."
Meanwhile, a top Republican on the panel, Sen. Lamar Alexander, of Tennessee, called the disclosures that would be required by the rules that will be released on Friday "much better than the first approach on gainful employment." Mr. Alexander, a former secretary of education, had threatened to offer an amendment to withhold the funds needed to put the rule into effect if the department followed through with its original proposal.
"Secretary Duncan is focusing on a real problem," he said. "Some students are borrowing too much and not getting enough value for what they are paying."
Tougher Stance on Recruitment
But if the department is showing signs that it may soften its stance on gainful employment, it has dug in its heels on another controversial issue: recruiter compensation. During negotiations over the rules, the department proposed striking a dozen "safe harbors" from a ban on compensating recruiters based on student enrollment. It followed through with that proposal in the rules due out Friday, while promising to provide guidance on what is—and isn't—allowed under the ban.
Congress outlawed incentive compensation in 1992 following reports that some trade institutions were enrolling unqualified students to receive their federal student-aid dollars. By prohibiting commissions, lawmakers hoped to discourage recruiters from signing up students for courses they couldn't handle. Under the law, colleges may not provide "any commission, bonus, or other incentive payment" to recruiters or admissions officers based on their success in securing enrollments or financial aid.
A decade later, the Education Department convened a committee to clarify the rules, which for-profit colleges had long complained were unclear and ambiguous. When the panel disbanded without reaching consensus, the department took action on its own, issuing regulations that outlined the 12 "safe harbors" from the law.
In the years since the safe harbors were created, some of the largest for-profit institutions have come under scrutiny by state and federal regulators, and a number of former recruiters have filed lawsuits under a whistle-blower law, the False Claims Act, that accuse colleges of improperly compensating recruiters. In one of the most high-profile lawsuits, the University of Phoenix recently agreed to pay $67.5-million to settle a False Claims lawsuit filed by two former recruiters.
Pauline Abernathy, vice president for the Institute for College Access & Success, said the changes in the proposed rule "appear to bring the department's policies more in line with federal law banning incentive compensation."
"These loopholes have led to high-pressure and deceptive sales tactics that can leave vulnerable consumers with staggering debt and no way to pay it back," she said.
But Harris N. Miller, president of the Career College Association, said he was disappointed that the department didn't include specific guidance in its rule. "This is going to harm students and make lawyers very happy," he said.
Most of the other regulations in the package to be released on Friday are aimed at protecting students and safeguarding taxpayers' investment in federal student aid. In many cases, the language mirrors agreements reached during the rule-making sessions.
They include rules that would:
Require colleges to evaluate the validity of a student's high-school diploma if either the college or the secretary of education believes that a closer examination of the diploma is warranted.
Strengthen the department's authority to take action against institutions engaging in deceptive advertising, marketing and sales practices.
Clarify the states' responsibility in approving and monitoring postsecondary programs.
Define a credit hour and establish procedures for accrediting agencies to determine whether a college's assignment of a credit hour is acceptable. The proposal also allows for a credit hour to be measured through learning outcomes instead of the customary use of "seat time."
The public will have 45 days to comment on the rules, which are expected to be finalized by November 1 and take effect in July 2011.
Sunday, June 6, 2010
Investor says for-profit colleges are morally bankrupt and socially destructive
By Andy Kroll
Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation.
In a speech titled "Subprime Goes to College," delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades. "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong," Eisman said. "The for-profit education industry has proven equal to the task." (All of Eisman's remarks come from a copy of his prepared remarks...)
Eisman, a blunt, no-frills portfolio manager at FrontPoint Financial Services Fund, a Morgan Stanley subsidiary, became an overnight sensation as one of the main characters in Lewis' latest. After witnessing the first wave of subprime madness in the 1990s, Eisman grew skeptical of the industry as a whole, Lewis writes. Then, when subprime surged again in the 2000s, he put his knowledge to work. Needless to say, he's a lot richer than he was two years ago.
The for-profit education sector has soared over the past decade, making companies like ITT and Apollo Group into heavyweights. Driving much of the growth, Eisman explained, was the sector's easy access to federally guaranteed debt through Title IV student loans. In 2009, he said, for-profit educators raked in almost one-quarter of the $89 billion in available Title IV loans and grants, despite having only 10 percent of the nation's postsecondary students.
Eisman attributes the industry's success to a Bush administration that stripped away regulations and increased the private sector's access to public funds. "The government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards," Eisman said. "This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper." (Calls to several for-profit colleges, including ITT and Corinthian, were not immediately returned.)
Another similarity between subprime lending and for-profit education is this, Eisman said: Both push low-income Americans into something they can't afford—in the schools' case, pricey programs that leave the students heavily in debt; what's more, the degrees they get mean little in the real world: "With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters—and I mean that literally—the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable."
Eisman went on to cite the industry's dropout rates of 50-plus percent as another sign of poor quality; the numbers are likely understated, he added, given that the industry reports them voluntarily. "How good could the product be if dropout rates are so stratospheric?" he asked. "Default rates are already starting to skyrocket. It's just like subprime—which grew at any cost and kept weakening its underwriting standards to grow."
How does this kind of industry even stay in business? That, Eisman asserted, has much to do with accreditation. There are two main tiers of college accreditation: national and regional—the latter being the more valuable. (Big schools like Yale and the University of Michigan are regionally accredited.) As Pulitzer Prize-winner Dan Golden has reported, for-profit colleges with the weaker national accreditation have started acquiring financially troubled colleges for their regional accreditation. In a Bloomberg report, Golden cites ITT's acquisition of New Hampshire-based Daniel Webster College in June 2009 for $20 million, a purchase that could ultimately reap $1 billion or more for ITT.
Eisman saved the ugliest part for last: As he sees it, the industry's era of massive profits—ITT is more profitable on a margin basis than Apple, he notes—are about to end, thanks to new government regulations in the pipeline. He predicts big hits to the per-share earnings of Apollo Group, ITT, Corinthian Colleges, Education Management Corporation, and the Washington Post Company—which owns and relies on Kaplan for profitability. For ITT and Corinthian, Eisman foresees 2010 losses of nearly 40 to 50 percent. Regarding EDMC, he noted in his prepared remarks that the company's 2010 fiscal estimate is "massively negative."
Eisman ended with a warning:
Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can’t afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back? The industry is now 25 percent of Title IV money on its way to 40 percent. If its growth is stopped now and it is policed, the problem can be stopped. It is my hope that this administration sees the nature of the problem and begins to act now. If the gainful employment rule goes through as is, then this is only the beginning of the policing of this industry.
But if nothing is done, then we are on the cusp of a new social disaster.
Not all experts on the for-profit education foresee such an ominous future. Trace Urdan, a managing director at Signal Hill who analyzes the industry, told Mother Jones earlier this week that pending regulation from Washington could indeed complicate the future for for-profit colleges. He added, however, that "if you're short on the industry right now, you think there's a game-over scenario on the way"—something Urdan himself doesn't necessarily see happening.
Should the Education Department strongly crack down on for-profit schools, Urdan said he predicted losses of 8 to 12 percent—far less than Eisman's 40 to 50 percent projection.
Andy Kroll is a reporter at Mother Jones. For more of his stories, click here. Email him with tips and insights at akroll (at) motherjones (dot) com.
Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation.
In a speech titled "Subprime Goes to College," delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades. "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong," Eisman said. "The for-profit education industry has proven equal to the task." (All of Eisman's remarks come from a copy of his prepared remarks...)
Eisman, a blunt, no-frills portfolio manager at FrontPoint Financial Services Fund, a Morgan Stanley subsidiary, became an overnight sensation as one of the main characters in Lewis' latest. After witnessing the first wave of subprime madness in the 1990s, Eisman grew skeptical of the industry as a whole, Lewis writes. Then, when subprime surged again in the 2000s, he put his knowledge to work. Needless to say, he's a lot richer than he was two years ago.
The for-profit education sector has soared over the past decade, making companies like ITT and Apollo Group into heavyweights. Driving much of the growth, Eisman explained, was the sector's easy access to federally guaranteed debt through Title IV student loans. In 2009, he said, for-profit educators raked in almost one-quarter of the $89 billion in available Title IV loans and grants, despite having only 10 percent of the nation's postsecondary students.
Eisman attributes the industry's success to a Bush administration that stripped away regulations and increased the private sector's access to public funds. "The government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards," Eisman said. "This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper." (Calls to several for-profit colleges, including ITT and Corinthian, were not immediately returned.)
Another similarity between subprime lending and for-profit education is this, Eisman said: Both push low-income Americans into something they can't afford—in the schools' case, pricey programs that leave the students heavily in debt; what's more, the degrees they get mean little in the real world: "With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters—and I mean that literally—the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable."
Eisman went on to cite the industry's dropout rates of 50-plus percent as another sign of poor quality; the numbers are likely understated, he added, given that the industry reports them voluntarily. "How good could the product be if dropout rates are so stratospheric?" he asked. "Default rates are already starting to skyrocket. It's just like subprime—which grew at any cost and kept weakening its underwriting standards to grow."
How does this kind of industry even stay in business? That, Eisman asserted, has much to do with accreditation. There are two main tiers of college accreditation: national and regional—the latter being the more valuable. (Big schools like Yale and the University of Michigan are regionally accredited.) As Pulitzer Prize-winner Dan Golden has reported, for-profit colleges with the weaker national accreditation have started acquiring financially troubled colleges for their regional accreditation. In a Bloomberg report, Golden cites ITT's acquisition of New Hampshire-based Daniel Webster College in June 2009 for $20 million, a purchase that could ultimately reap $1 billion or more for ITT.
Eisman saved the ugliest part for last: As he sees it, the industry's era of massive profits—ITT is more profitable on a margin basis than Apple, he notes—are about to end, thanks to new government regulations in the pipeline. He predicts big hits to the per-share earnings of Apollo Group, ITT, Corinthian Colleges, Education Management Corporation, and the Washington Post Company—which owns and relies on Kaplan for profitability. For ITT and Corinthian, Eisman foresees 2010 losses of nearly 40 to 50 percent. Regarding EDMC, he noted in his prepared remarks that the company's 2010 fiscal estimate is "massively negative."
Eisman ended with a warning:
Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can’t afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back? The industry is now 25 percent of Title IV money on its way to 40 percent. If its growth is stopped now and it is policed, the problem can be stopped. It is my hope that this administration sees the nature of the problem and begins to act now. If the gainful employment rule goes through as is, then this is only the beginning of the policing of this industry.
But if nothing is done, then we are on the cusp of a new social disaster.
Not all experts on the for-profit education foresee such an ominous future. Trace Urdan, a managing director at Signal Hill who analyzes the industry, told Mother Jones earlier this week that pending regulation from Washington could indeed complicate the future for for-profit colleges. He added, however, that "if you're short on the industry right now, you think there's a game-over scenario on the way"—something Urdan himself doesn't necessarily see happening.
Should the Education Department strongly crack down on for-profit schools, Urdan said he predicted losses of 8 to 12 percent—far less than Eisman's 40 to 50 percent projection.
Andy Kroll is a reporter at Mother Jones. For more of his stories, click here. Email him with tips and insights at akroll (at) motherjones (dot) com.
Tuesday, May 25, 2010
AFT organizes Art Institute of Seattle
Inside Higher Ed reports:
Instructors at the Art Institute of Seattle on Friday filed signatures with the National Labor Relations Board seeking a union election with the goal of affiliating with the American Federation of Teachers.(The Art Institute of Seattle and other art institute campuses including one planned for Milwaukee's Third Ward are owned by the Education Management Corporation, a major player in for-profit higher ed, which also operates Argosy University, Brown Mackie College, and South University.)
The move could be significant for several reasons. The major unions that organize faculty members in the United States (the AFT, the American Association of University Professors and the National Education Association) have largely stayed away from the growing for-profit sector. Officials of both the AAUP and NEA said that they have no organizing drives going on in for-profit higher ed. If the AFT is successful, some labor experts believe that academic unions could find fertile ground in for-profit higher education (and plenty of academics in nonprofit higher education would like to see that happen).
Also of note are the issues that union organizers are stressing. There is little talk of wages and benefits. Rather, the campaign is being built around allegations that faculty members are not being permitted to uphold academic quality. Faculty members say that they are pressured to give (undeserved) high grades and to pass some students who should fail. These charges come at a time of increasing scrutiny of for-profit higher education and mirror themes from a much-discussed "Frontline" documentary and from advocates for tougher federal regulation of the for-profit sector, suggesting that some for-profit colleges encourage students to enroll not because they are qualified or will benefit, but for their student aid dollars...
The "universal concerns" of faculty members...are "student-related issues." ... "the students are being treated like cattle," and that the institute's "focus is to get the numbers in, get them on financial aid, and to get the money back to shareholders ... and to do this, they want to make sure that regardless of what happens in the classroom, the student passes."
Faculty members have been going to open houses that the art institute holds to listen to what recruiters say, and ...students are being promised that the courses will be easy and will lead to good jobs. As a result, students have "weird expectations" and faculty members are caught in the middle when they try to enforce academic standards that the students aren't prepared for. "What the faculty have said that they hate so much is that they feel that the school is stealing from the students and we are in the middle of that..."
"I think this could be a test case for a whole class of institutions," said Richard Boris, director of the National Center for the Study of Collective Bargaining in Higher Education and the Professions, at the City University of New York’s Hunter College. For-profit higher education is booming, Boris noted, but faculties are heavily part time, without protections of tenure or unions. "You have this cohort of the academic dispossessed," he said.
The entire Higher Ed article is linked here.
Instructors at the Art Institute of Seattle on Friday filed signatures with the National Labor Relations Board seeking a union election with the goal of affiliating with the American Federation of Teachers.(The Art Institute of Seattle and other art institute campuses including one planned for Milwaukee's Third Ward are owned by the Education Management Corporation, a major player in for-profit higher ed, which also operates Argosy University, Brown Mackie College, and South University.)
The move could be significant for several reasons. The major unions that organize faculty members in the United States (the AFT, the American Association of University Professors and the National Education Association) have largely stayed away from the growing for-profit sector. Officials of both the AAUP and NEA said that they have no organizing drives going on in for-profit higher ed. If the AFT is successful, some labor experts believe that academic unions could find fertile ground in for-profit higher education (and plenty of academics in nonprofit higher education would like to see that happen).
Also of note are the issues that union organizers are stressing. There is little talk of wages and benefits. Rather, the campaign is being built around allegations that faculty members are not being permitted to uphold academic quality. Faculty members say that they are pressured to give (undeserved) high grades and to pass some students who should fail. These charges come at a time of increasing scrutiny of for-profit higher education and mirror themes from a much-discussed "Frontline" documentary and from advocates for tougher federal regulation of the for-profit sector, suggesting that some for-profit colleges encourage students to enroll not because they are qualified or will benefit, but for their student aid dollars...
The "universal concerns" of faculty members...are "student-related issues." ... "the students are being treated like cattle," and that the institute's "focus is to get the numbers in, get them on financial aid, and to get the money back to shareholders ... and to do this, they want to make sure that regardless of what happens in the classroom, the student passes."
Faculty members have been going to open houses that the art institute holds to listen to what recruiters say, and ...students are being promised that the courses will be easy and will lead to good jobs. As a result, students have "weird expectations" and faculty members are caught in the middle when they try to enforce academic standards that the students aren't prepared for. "What the faculty have said that they hate so much is that they feel that the school is stealing from the students and we are in the middle of that..."
"I think this could be a test case for a whole class of institutions," said Richard Boris, director of the National Center for the Study of Collective Bargaining in Higher Education and the Professions, at the City University of New York’s Hunter College. For-profit higher education is booming, Boris noted, but faculties are heavily part time, without protections of tenure or unions. "You have this cohort of the academic dispossessed," he said.
The entire Higher Ed article is linked here.
Friday, May 21, 2010
Dilpoma mills spend millions to stop regulation
In response to for-profit colleges' escalating student loan default rates and deceptive recruitment practices the federal government has proposed tough new regulations.
In response,these lucrative diploma mills like Corinthian College Inc. and the Education Development Management Corporation (EDMC) which have announced plans to begin operations in Milwaukee are spending millions of dollars on lobbyists to undermine the legislation.
The Chronicle of Higher Education reports that:
For-profit lobbyists and executives are swarming Capitol Hill and federal agencies...
For-profit colleges, faced with the threat of program closures, have gone on a lobbying and public-relations blitz, spending hundreds of thousands of dollars in an attempt to beat back an Education Department proposal to cut off federal student aid to for-profit programs whose graduates carry high debt-to-income loads.
In the five months since the department offered its controversial "gainful-employment proposal," for-profit colleges and their chief association have spent at least $620,000 lobbying members of Congress, the Education Department, and the Office of Management and Budget, which is reviewing the department's proposed rule (see related article, with tables). The University of Phoenix, the nation's largest for-profit institution, has taken out ads in major publications, including The Chronicle, defending the sector and arguing against the rule, while for-profit colleges are urging their students to sign on to a petition opposing the plan.
Last year, Corinthian alone spent $460,000 and the EDMC $270,000. In 2009-2010Proprietary colleges spent a total of $3.1 million on lobbying.
Lobbying by For-Profit College Groups, 2009-10
Apollo Group Inc. $560,000
Corinthian Colleges Inc. $460,000
DeVry Inc. $460,000
Career Education Corp. $360,000
Bridgepoint Education $270,000
Education Management Corp. $270,000
Career College Association $250,000
American Public University System $240,000
Kaplan Inc. $200,000
Capella University $60,000
ITT Educational Services Inc. $30,000
Concorde Career Colleges Inc. $20,000
Total $3,180,000
Notes on lobbying expenditures: Figures are approximate because federal rules do not require reporting of actual amounts of lobbying expenditures. To avoid double-counting of outside lobbyist expenses, The Chronicle took into account that organizations employing in-house lobbyists must include the costs of outside lobbyists in their quarterly reports. Figures show spending for all of the 2009 calendar year and the first quarter of 2010.
Source: Chronicle analysis of Lobbying Disclosure Act Database, U.S. Senate
In response,these lucrative diploma mills like Corinthian College Inc. and the Education Development Management Corporation (EDMC) which have announced plans to begin operations in Milwaukee are spending millions of dollars on lobbyists to undermine the legislation.
The Chronicle of Higher Education reports that:
For-profit lobbyists and executives are swarming Capitol Hill and federal agencies...
For-profit colleges, faced with the threat of program closures, have gone on a lobbying and public-relations blitz, spending hundreds of thousands of dollars in an attempt to beat back an Education Department proposal to cut off federal student aid to for-profit programs whose graduates carry high debt-to-income loads.
In the five months since the department offered its controversial "gainful-employment proposal," for-profit colleges and their chief association have spent at least $620,000 lobbying members of Congress, the Education Department, and the Office of Management and Budget, which is reviewing the department's proposed rule (see related article, with tables). The University of Phoenix, the nation's largest for-profit institution, has taken out ads in major publications, including The Chronicle, defending the sector and arguing against the rule, while for-profit colleges are urging their students to sign on to a petition opposing the plan.
Last year, Corinthian alone spent $460,000 and the EDMC $270,000. In 2009-2010Proprietary colleges spent a total of $3.1 million on lobbying.
Lobbying by For-Profit College Groups, 2009-10
Apollo Group Inc. $560,000
Corinthian Colleges Inc. $460,000
DeVry Inc. $460,000
Career Education Corp. $360,000
Bridgepoint Education $270,000
Education Management Corp. $270,000
Career College Association $250,000
American Public University System $240,000
Kaplan Inc. $200,000
Capella University $60,000
ITT Educational Services Inc. $30,000
Concorde Career Colleges Inc. $20,000
Total $3,180,000
Notes on lobbying expenditures: Figures are approximate because federal rules do not require reporting of actual amounts of lobbying expenditures. To avoid double-counting of outside lobbyist expenses, The Chronicle took into account that organizations employing in-house lobbyists must include the costs of outside lobbyists in their quarterly reports. Figures show spending for all of the 2009 calendar year and the first quarter of 2010.
Source: Chronicle analysis of Lobbying Disclosure Act Database, U.S. Senate
Thursday, May 20, 2010
Suit filed against diploma mill that MEDC is planning to finance
By Brian BowlingPITTSBURGH TRIBUNE-REVIEWFriday, May 7, 2010
A former employee of South University Online claims in a federal lawsuit unsealed Thursday that the subsidiary of Downtown-based Education Management Corp. fraudulently obtained student loans.
Brian T. Buchanan of Squirrel Hill filed the lawsuit in 2007 seeking return of the student loan money under a federal law that allows private citizens to file such actions on behalf of the government.
He claims that while working for the school from December 2005 until May 2007, he observed the company paying salaries to admissions representatives based on the number of students they signed up for courses. That violates the federal law that made South University Online eligible to accept federal student aid, he says in the lawsuit.
Jacquelyn Muller, spokeswoman for Education Management Corp., said the publicly held company doesn't comment on pending litigation, but it plans to file a shareholder notice about the lawsuit today with the Securities and Exchange Commission. Such notices typically advise shareholders about the potential impact a damage award could have on the company's finances.
The law under which Buchanan sued requires the case to be sealed for at least 60 days until the government decides whether it wants to take over the case. The government repeatedly asked for extensions of the deadline. U.S. District Judge Arthur Schwab told the government on March 4 that it had to make a decision by April 15. The government decided to let Buchanan continue with the case but may still intervene, according to court documents.
"We're still investigating the case," said acting U.S. Attorney Bob Cessar. He declined further comment.
The lawsuit accuses the company of submitting fake proctor forms that are supposed to ensure students who took admissions tests online were observed by a nonfamily member who verified they didn't look up the answers. Prospective students are not allowed to take the admissions test more than three times in a year, but South University Online allowed students to repeatedly take the tests until they passed it, the lawsuit says.
The company provided free trips, iPods and gift cards to admissions representatives who signed up the highest numbers of students, the lawsuit says.
If Buchanan proves his claims, South University Online would be liable for three times the amount it defrauded from the government plus a fine of $5,000 to $10,000 for each false claim it submitted.
If the government doesn't intervene in the case, Buchanan would receive about 25 to 30 percent of the damages, according to a 2009 report on citizen lawsuits by the Congressional Research Service. If the government intervenes, his share would be at least 10 percent and as high as 25 percent, depending on how crucial his information was in winning the lawsuit.
A former employee of South University Online claims in a federal lawsuit unsealed Thursday that the subsidiary of Downtown-based Education Management Corp. fraudulently obtained student loans.
Brian T. Buchanan of Squirrel Hill filed the lawsuit in 2007 seeking return of the student loan money under a federal law that allows private citizens to file such actions on behalf of the government.
He claims that while working for the school from December 2005 until May 2007, he observed the company paying salaries to admissions representatives based on the number of students they signed up for courses. That violates the federal law that made South University Online eligible to accept federal student aid, he says in the lawsuit.
Jacquelyn Muller, spokeswoman for Education Management Corp., said the publicly held company doesn't comment on pending litigation, but it plans to file a shareholder notice about the lawsuit today with the Securities and Exchange Commission. Such notices typically advise shareholders about the potential impact a damage award could have on the company's finances.
The law under which Buchanan sued requires the case to be sealed for at least 60 days until the government decides whether it wants to take over the case. The government repeatedly asked for extensions of the deadline. U.S. District Judge Arthur Schwab told the government on March 4 that it had to make a decision by April 15. The government decided to let Buchanan continue with the case but may still intervene, according to court documents.
"We're still investigating the case," said acting U.S. Attorney Bob Cessar. He declined further comment.
The lawsuit accuses the company of submitting fake proctor forms that are supposed to ensure students who took admissions tests online were observed by a nonfamily member who verified they didn't look up the answers. Prospective students are not allowed to take the admissions test more than three times in a year, but South University Online allowed students to repeatedly take the tests until they passed it, the lawsuit says.
The company provided free trips, iPods and gift cards to admissions representatives who signed up the highest numbers of students, the lawsuit says.
If Buchanan proves his claims, South University Online would be liable for three times the amount it defrauded from the government plus a fine of $5,000 to $10,000 for each false claim it submitted.
If the government doesn't intervene in the case, Buchanan would receive about 25 to 30 percent of the damages, according to a 2009 report on citizen lawsuits by the Congressional Research Service. If the government intervenes, his share would be at least 10 percent and as high as 25 percent, depending on how crucial his information was in winning the lawsuit.
Subscribe to:
Posts (Atom)