About 2,700 Illinois students of for-profit schools will receive about $3 million in debt relief under a national settlement with a Pittsburgh company running trade schools and colleges.
The Justice Department on Monday announced the settlement, which resolves a consumer fraud investigation by several attorneys general and separate whistleblower lawsuits.
Illinois Attorney General Lisa Madigan says Education Management Corporation (EDMC) used "deceptive" recruitment and enrollment practices.
The agreement says loans offered through school programs won't be collected. It applies to certain students attending between 2006 and 2014. Students will be contacted. Madigan's office says there also will be a phone number.
The corporation operates five Illinois colleges with Argosy University and Illinois Institute of Art campuses in the Chicago area.
Under the agreement, EDMC must also make reforms that'll be independently monitored.
Education Management Corp., the second-largest for-profit college chain, agreed to pay $95.5 million to resolve allegations that it paid employees based on student enrollment in violation of federal law.
For-profit colleges are reeling from mounting government probes, tanking stock prices, regulatory scrutiny and depressed student enrollment. ITT Tech is being sued by the Securities and Exchange Commission for fraud; University of Phoenix has been suspended from receiving military tuition assistance; and Career Education Corp. closed all 14 of its Sanford-Brown schools. As marquee names falter, the industry itself appears to be in trouble.
In the case of Education Management, the Department of Justice claims the company violated a federal ban on incentive compensation at schools participating in federal financial aid programs. The rule is meant to prevent schools from steering students into loans to boost revenue.
Prosecutors say the company flouted the ban by paying recruiters based on the number of students enrolled, leading employees to use aggressive and deceptive tactics to get students in the doors. Top recruiters received Pittsburgh Pirates tickets, free lunches and all-expense-paid vacations to Las Vegas and Puerto Vallarta, according to the complaint.
All the while, Education Management swore to the Department of Education that it was complying with the rules. Between July 2003 and June 2011 about 90 percent of the tuition the company received, or $11 billion, came from federal grants and loans, according to the complaint.
"EDMC's actions were not only a betrayal of their students' trust; they were a violation of federal law," Attorney General Loretta Lynch said Monday during a press conference. She called the settlement "a historic step forward in our collective and ongoing fight against fraudulent and abusive practices in the for-profit education industry."
Illinois Attorney General Lisa Madigan filed five lawsuits Monday against debt-relief companies she claims preyed on consumers struggling to repay student loans.
The companies charged upfront fees as high as $1,250 for bogus services or for help that the borrowers could have gotten themselves for...
Problems at the company came to light in 2007 when Lynntoya Washington, a former assistant director of admission at the Art Institute of Pittsburgh Online Division, sued the company under the so-called False Claims Act. The law encourages witnesses to come forward in cases where the government has been defrauded by providing them up to a third of the proceeds recovered by authorities.
State and federal authorities joined Washington's case in 2011, shortly after another whistleblower, Michael Mahoney, the director of the company's online higher education division, came forward with more evidence of misconduct.
The civil settlement is the largest involving false claims made to the Department of Education. It calls on Education Management to provide students with a single-page disclosure detailing job placement rates, free orientation and the ability to withdraw at no cost up to seven days after their first class on campus or 21 days online.
The company will also forgive the debts owed by former students who left within 45 days of their first term and whose final day of attendance was between Jan. 1, 2006, and Dec. 31, 2014.
"We are also pleased to have resolved the civil claims raised by the Department of Justice and state attorneys general," said Education Management president and chief executive Mark McEachen said in a statement. "Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students."
Education Management, which enrolls more than 100,000 students, did not admit to any wrongdoing.
"This settlement should be a warning to other career colleges out there: We will not stand by while you profit illegally off of students and taxpayers," Education Secretary Arne Duncan said during the press conference. "The federal government will continue to work tirelessly with state attorneys general to ensure that all colleges follow the law."
The case against Education Management is the government's latest effort to crack down on for-profit colleges accused of defrauding taxpayers and students. The Department of Education's decision last year to cut off Corinthian Colleges' access to federal student loans and grants for falsifying job placement and graduation rates ultimately led the company to file bankruptcy. The department fined the company $30 million in April, a month before Corinthian shut its doors.
Associated Press, The Washington Post contributed