Blog: Government’s Answer to the Debt Crisis: Sue Multimillion Dollar Career Colleges

By Kevin Kuzma, Online Editor

In the strange new world under the authority of the Department of Education’s "gainful employment" rule, it’s taken a little more than a month for career colleges to learn there is a potentially larger threat against for-profit education: baseless government-led lawsuits.

On Monday, the Justice Department revived charges against Pittsburgh-based Education Management Corp. (EDMC) alleging that the career college conglomerate was illegally paying recruiters to enroll students – not in the new era of intense government regulations, but eight years ago during the Bush administration. The attorneys general of California, Illinois, Florida and Indiana have joined in the Justice Department’s intervention into a lawsuit filed in 2007 by two former EDMC employees, Michael Mahoney and Lynntoya Washington.

The timing of the suit is questionable with our nation’s debt crisis. Who better to punish than a multibillion dollar industry that the administration has already successfully managed to vilify?

The DOE’s rule was supposed to loom large over the for-profit education landscape beginning July 1, and it has certainly done so in regard to ongoing debate and legal activity including that taken by the Association of Private Sector Colleges and Universities (APSCU.) The sector has braced itself for unknown penalties coming in three years. And the sector’s biggest players have implemented new measures to see that students better understand the educational tasks and financial risks before they enroll.

University of Phoenix, for example, now requires prospective students with fewer than 24 college credits to participate in a three-week orientation program. Enrollment counselors no longer benefit from a financial incentive program. As a result of those and other measures, according to an Associated Press report, UOP’s “new student enrollment has declined by nearly half, and the company reported $159 million less in net revenue after the first three quarters of fiscal year 2011 compared to the previous year.”

To that end, the intense scrutiny has caused the larger players to tighten their ships. Now this suit comes along and shows that the rule is just one tool available to this administration to drive students to publicly funded community colleges, traditional colleges and universities. This administration is intent on exploring all its available options to financially cripple the sector, including a leap backward in time to find ways to cost the sector millions.

The vast majority of cases like the one facing EDMC are tossed out following due process. Accusations driven by former employees who failed at their jobs aren’t likely to boast glowing endorsements about the employers who they failed. But even in 2003, there was enough focus on incentive compensation that it would be hard to imagine a scenario in which EDMC was not compliant.

What is likely to happen with EDMC is this: The suit will get tied up in court for months while the company and the sector continue to suffer from bad press. Then a few months from now it will be announced that a financial settlement was reached. The total amount involved will be in the millions. EDMC will not admit to any fault. And the government will get a multimillion dollar payout and move on to the next major lawsuit.

The entire career education sector wasn’t necessarily implicated by the latest accusations against EDMC. We all know there are different types of schools with different marketing and recruitment approaches, a wide range of student numbers and a variance in the courses offered and the quality of education provided. But from the traditional news media’s if-one-school-does-it-they-all-do-it perspective, the entire will likely take a needless black eye from the sanctions.

If the government needs a check written, I suggest they just ask for it – politely. For-profit schools could go on doing the good work that they do without students feeling as though they’ve been ripped off or educators being characterized as crooks. The court system would also be free for more frivolous lawsuits to be filed. And the government would be able to cash its payout check – and maybe write a few without fear of them bouncing.

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