A while back on this blog, we wrote about a whistleblower suit brought against the Education Management Corporation (EDMC) in which the for profit college company was accused of engaging in fraudulent recruiter compensation practices. In early May, we noted that the Department of Justice and several states planned to join the suit.
According to the complaint, EDMC-the second-largest for profit college chain in the United States, fraudulently induced the Education Department to provide over $11 billion in federal student aid since 2003. EDMC reportedly paid recruiters based on the number of students they enrolled, which is a violation of federal law, according to the Justice Department.
According to the Justice Department, colleges that receive federal aid may not pay recruiters incentives tied to enrollment since it tends to encourage companies to register unqualified students. But, "Each and every one of the claims [EDMC] submitted or caused a student to submit violated" the U.S. False Claims Act. As part of its filing, the Justice Department claimed that Education Management enrolled students who were under the influence of drugs.
As Bloomberg points out, the for profit college education industry has come under increasing scrutiny recently, as Congress, state legislators and attorneys general have begun investigating their sales practices and the debt loads of graduates.
At this point, the states of Illinois, Florida, California and Indiana have intervened in the case, filing along with the Justice Department.
In our next post, we'll continue looking at this whistleblower suit.
Source: Bloomberg, "Education Management Violated Student-Aid Rules, U.S. Says," John Lauerman, August 8, 2011.