For-profit colleges defend controversial recruitment practices

EDMC was one of the fastest growing for-profit education companies over the past decade as online course offerings have grown, and until last year’s “gainful employment” rules instituted by ED, few regulations have been placed on the sector.

Federal officials said they would continue to draw attention to the alleged violations of student recruitment laws that were once an accepted practice in parts of higher education.

“Colleges should not misuse federal education funds by paying improper incentives to admissions recruiters,” said Tony West, assistant attorney general for the Civil Division of the Department of Justice. “Working with the Department of Education, we will protect both students and taxpayers from arrangements that emphasize profits over education. … Federal tax dollars must be protected from abuse.”

If federal officials can prove that EDMC recruiters knowingly submitted false claims, the government can recover three times the damages that resulted from the allegedly illegal recruitment practices, along with a penalty of up to $11,000 per claim.

Once boasting consistently high stock prices alongside several large for-profit operators, EDMC’s shares took a sharp decline Feb. 2 when the company adjusted its earnings predictions amid declining enrollment numbers.

EDMC stock prices dropped by 22 percent when the latest financial outlooks were released while lawmakers and ED officials continued to pressure the for-profit college giant. The company slashed 400 jobs from its online department in late January.

EDMC is now among for-profit college companies that have taken considerable financial hits while the Obama administration and the Government Accountability Office (GAO) release reports and statistics exposing unscrupulous practices throughout the industry.

In December 2009, a day after ED released a report showing skyrocketing loan default rates among for-profit college students, Apollo Group Inc.—the University of Phoenix’s parent company—agreed to a $78.5 million settlement after a six-year court battle that started when former university employees filed a lawsuit claiming recruiters were paid based on the number of students they enrolled, a practice that violates federal law.

Apollo Group denied the former plaintiffs’ allegations, dismissing them as disgruntled former employees and claiming the school’s recruiting practices were within federal guidelines.

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