Online for-profit colleges compared to ‘predatory lending industry’ in whistleblower lawsuit

South University recruiters were told to target low-income families.

Allegations brought by a former admissions manager at an online for-profit college describe a systematic attempt to deceive incoming students into signing up for pricey college loans while the school overstated students’ success in finding jobs after graduation.

The whistleblower lawsuit is the latest legal blow to Education Management Corp. (EDMC), a Pittsburgh-based for-profit college company that drew scrutiny from the Department of Justice last year after a former employee charged that EDMC violated federal law by awarding bonuses to school recruiters based solely on the number of students they enrolled.

The latest whistleblower suit, made public March 15, accuses EDMC of defrauding U.S. taxpayers by enrolling “as many students as possible for as long as possible to maximize financial aid” while targeting “a troubled population, including … the poor, the undereducated, the homeless, those who were the first in their families to attempt higher education, those with criminal records … and those living in shelters and halfway houses.”

The suit was brought by Jason Sobek, a former admissions officials at South University’s online program who said that EDMC’s “very livelihood” of recruiters – who enrolled many students into online courses – were dependent on recruitment quotas, which, if true, would violate U.S. law.

For-profit schools like South University “have essentially borrowed the business model of the predatory lending industry, taking zero risk in signing up students for federally-guaranteed loans,” the lawsuit said.

While 11 percent of college students attend for-profit schools, they account for more than four in 10 student loan defaults and 26 percent of loan borrowers, according to Education Department (ED) statistics. Meanwhile, for-profit colleges make most of their money from federal financial aid.

Sobek echoed a common criticism of the for-profit education sector when he charged that admissions officers at South University were encouraged to mislead incoming students because “corporate investors were monitoring their enrollment numbers,” and the school wanted to show their investors consistent growth.

Recruiters who did not meet monthly quotas for enrolling students into online and traditional courses were fired, according to the lawsuit.

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