Feds go after for-profit college firm for fraud, phony recruiting

Education Management Corp. (EDMC), the second-largest U.S. for-profit college chain, used improper recruitment practices to secure more than $11 billion in U.S. student aid, prosecutors said in a civil lawsuit.

Education Management, 41 percent owned by Goldman Sachs, illegally paid recruiters based on the number of students signed up, a violation of rules for colleges that get U.S. student grants and loans, the Justice Department said today in a complaint filed in federal court in Pittsburgh.

Prosecutors spelled out their case against the company for the first time since May, when the Justice Department joined an employee whistleblower suit. Colleges that receive federal aid are barred from paying recruiters incentives tied to enrollment because it may encourage companies to register unqualified students. The government claimed Education Management enrolled students who appeared to be under the influence of drugs.

Education Management “fraudulently induced” the Education Department to make the company eligible for more than $11 billion in federal grants and loans since 2003, according to the complaint. “Each and every one of the claims it submitted or caused a student to submit violated” the U.S. False Claims Act, the government said…

The company, which enrolls almost 140,000 students, operates the Art Institute chain, Argosy University, Brown Mackie College and South University. The company reported $2.89 billion in revenue in the year ended June 30…

The Education Department in July moved to make all incentive compensation for college recruiters illegal, removing 12 types of exemptions or “safe harbors” that were put into place under President George W. Bush.

Ah, yes – the Education President. Or at least the president who helped make education profitable regardless of sleazy practices.

The problem isn’t a new one. Nor is failure to regulate and maintain standards that inhibit defrauding people who can’t afford to attend a mainstream university.

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