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For-profit education firm denies lawsuit charges

October 5, 2011

A large for-profit education company that operates two schools in Indianapolis has asked a judge to throw out a Department of Justice lawsuit that claims it used improper sales tactics to lure unqualified students and the billions of dollars in financial aid they bring.

Education Management Corp. runs more than 100 higher-education programs across the country, offering diplomas and degrees in fashion, culinary arts, business and other fields, some through online courses.

Locally, Education Management operates Brown Mackie College and the Art Institute of Indianapolis. It also has Brown Mackie College outlets in South Bend, Merrillville, Michigan City and Fort Wayne.

A whistleblower lawsuit backed this year by the Department of Justice accuses the company of paying illegal incentives to recruiters to sign up students, in violation of a 1992 law that bans such practices. The company received $11 billion, nearly all its revenue, from student financial aid from 2003 through this year, the government's lawsuit said.

The company, in its response Wednesday, said the law prohibits schools from considering only enrollment figures when setting an admission officer's pay. However, the company said, it also weighs five other "quality" factors: job knowledge, business ethics, professionalism, customer service and initiative.

"Notably, (employees) with fewer New Student Points but more Quality Points could receive a higher salary than those with more New Student Points but lower Quality Points," the company said in its motion to dismiss the case.

The 1992 law grew out of reports of overly aggressive sales procedures in the for-profit education industry that led to the enrollment of unqualified students and high student-loan default rates.

Education Management, based in Pittsburgh, offers classes at 105 locations in 32 states and Canada, as well as online. It said many of its 100,000 yearly students are non-traditional — working adults, single parents and low-income and minority students.

The company operates diploma, undergraduate and graduate programs at its Art Institutes, Argosy University, Brown Mackie College and South University, and it employs more than 22,000 people, according to the response.

The government said the company inflated its career placement opportunities, preyed on applicants' psychological vulnerabilities and enrolled students regardless of their qualifications.

The 2007 lawsuit was filed by former employees Michael Mahoney and Lynntoya Washington but was unsealed only this year after the Department of Justice and the attorneys general of California, Florida, Indiana and Illinois intervened. If they prove their case, Education Management could be forced to repay three times the damage, plus penalties, with the whistleblowers able to collect 15 percent to 25 percent of the recovery.

The company said that the government's case relies exclusively on "two isolated, low-level employees with virtually no relevant knowledge" and that the allegations in the complaint are "contradicted by what little knowledge the relators purport to have, the government's own exhibits, or both."

The case is pending in federal court in Pittsburgh.

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