Justice Department Reaches $95 Million Settlement With Owner Of Art Institutes

The owner of the Art Institutes chain will pay $95.5 million to settle a whistleblower lawsuit.

The Justice Department has reached a $95.5 million settlement with Education Management Corporation, once the country's second-largest for-profit college chain, over allegations that the company defrauded taxpayers out of billions of dollars. EDMC runs chains of schools including the Art Institutes, Argosy University, and Brown-Mackie College.

The agreement, the largest False Claims Act settlement ever reached against a college, is part of an ongoing push by the government to target abuses in the for-profit college industry. But unlike in the case of Everest University owner Corinthian Colleges, government officials said the settlement includes no grounds for student loan debt forgiveness for the vast majority of EDMC's students.

The lawsuit — filed by whistleblowers from the company and joined by both federal and state prosecutors in 2011 — alleges that Education Management Corporation, or EDMC, illegally paid its recruiters based on how many students they enrolled, encouraging predatory and "abusive" tactics that raked in unqualified students. Then, the suit alleges, EDMC lied to the government about its practices, a violation of the federal False Claims Act.

"The violations tainted the very fabric of EDMC's educational mission," said US Attorney David Hickton. EDMC's practices, Hickton said, "victimized students who are hungry for an education in order to achieve a better life."

The 2011 suit said that by paying recruiters based on enrollments, schools "incentivize their recruiters to pressure applicants to enroll and, in doing so, to mislead applicants about the degree programs’ cost, effectiveness and job placement rates."

EDMC has admitted no guilt in either its settlement of the lawsuit, or in a consent decree it reached with 39 states over marketing, enrollment and recruitment practices. And while the consent agreement includes provisions for $100 million in loan forgiveness for a handful of students who attended the school only briefly, the vast majority of current and former students "victimized" by the company will still have to pay off their federal student loans.

Secretary of Education Arne Duncan said that was because the allegations involved defrauding the government, rather than student loan borrowers themselves, as had been the case for Corinthian Colleges. "It was breaking the law and lying to us," not to students, Duncan said.

That distinction, and EDMC's lack of admission of guilt to state attorneys general, is likely to prevent any former students from receiving debt relief from the federal government. In the wake of the collapse of the for-profit giant Corinthian Colleges, the Education Department has established a process for former students at Corinthian and other schools to apply to have their loans forgiven if they had been "misled" into taking out federal loans.

All EDMC schools are still eligible to receive federal student loan funds.