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.

South University and The Art Institute of Pittsburgh – another EDMC school – presented misleading statistics about job placement after graduation, Sobek charged.

South University recruitment officials were instructed to tell prospective students that 92 percent of university graduates were employed in their field of studies. South University’s definition of employment was working a single day, or if the job was only somewhat related to their area of study.

For example, a South University student who graduated with an interior design degree and landed a job as a sales associate at Target for $19,000 a year was considered to be employed in his or her field of study.

The same was true for a fashion marketing graduate who was employed at a shoe store, making $14,000 annually.

Sobek said EDMC’s South University also misled prospective students on the school’s website and during campus tours. Students, for example, were told that the university’s nursing program was accredited. It was not, and Sobek said officials knew as much.

In fact, South University’s associate director of nursing and health professions told recruiters that they did not have to tell incoming students that the nursing program wasn’t accredited unless the student asked about accreditation.

In that case, “you have to tell them we’re in the process,” the associate director of nursing said, according to court documents.

The onslaught of lawsuits against the country’s largest operators of for-profit colleges – including the multiple suits against EDMC — has proven worrisome to online learning advocates.

Many of the industry’s largest colleges with the most recognizable brand names have advertised using the anywhere, anytime convenience of online courses that appeal to adults with hectic schedules.

“Online education is quite distinct from the profit motive of [for-profit schools],” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers (AACRAO), who spoke during Harkin’s July 21 roundtable discussion. “But the confluence comes when people see for-profits highlighting their online classes.”

Associating online education with a college sector that has been hammered by public figures, nonprofit organizations, and ED officials in recent years could tarnish the public’s perception of web-based learning, Nassirian said.

“Committing fraud is easier from a distance,” he said, referring to a 2010 Government Accountability Office (GAO) report detailing how for-profits pressure students into signing up for massive student loans. “That’s just the nature of distance delivery. It’s just like eMails you get from princes in West Africa asking for money. There’s more ambiguity online.”

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