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As students are making their final preparations for the school opening, a lingering dispute between for-profit college industry and government regulators has boiled over, with a lawsuit claiming that one of the major players are engaged in a massive fraud.
The Department of Justice last Monday has filed a complaint against the Education Management Corporation (EDMC), marking the first time that the federal government has involved itself in one of the many complaints against similar for-profit colleges.
This move by the Justice Department signaled the rise to the next level of the battle against for-profit colleges, which have been singled out because they are largely funded by students with federal loans. These students are far more prone to default compared to those who are studying at non-profit universities and colleges.
It was alleged in the complaint filed against EDMC that it paid recruiters based on the number of students they enrolled at schools operated by the company. The information on the lawsuit revealed that EDMC operated schools in various parts of the country under names like Argosy University, South University, Brown Mackie College and Art Institute.
The Justice Department cited federal laws that prohibited commission-based recruiting, and argued that since EDMC violated these laws, it is therefore not eligible for the $11 billion in federal and state aid it received from July 2003 to June 2011. Attorneys general from California, Florida, Indiana and Illinois have also joined the lawsuit.
The government, in its 122-page complaint, said, “EDMC has created a ‘boiler room’ style sales culture and has made recruiting and enrolling new students the sole focus of its compensation system.”