Education Management Corp., the parent company of well-known for-profit school The Art Institutes, has settled a lawsuit brought by shareholders who claim the company lied to them about complying with federal and state education laws. According to recent court documents, EDMC has agreed to pay investors $2.5 million in the settlement, which still has to be approved by a U.S. District Judge.
Shareholders moved to file the suit in 2014 after another lawsuit brought about by the Justice Department, several states and former employees, requesting over $11 billion in student aid be returned on the grounds that EDMC intentionally broke state and federal laws. The investors say they were misled regarding the company’s compliance with regulations and have used the complaints listed in the federal lawsuit to prove that they were deceived. The Pittsburgh, Pennsylvania-based company has denied all claims against it. Meanwhile, a trial date has not yet been set for the federal suit.
The settlement would require $250,000 be put aside for payments, as well as an undisclosed amount for court costs and up to a third of the $2.5 million for attorneys’ fees. The rest of the money would go to those who have proof they held shares in EDMC during the period of July 1, 2011 and September 16, 2014.
There has been no response to news of the settlement by EDMC, which also owns for-profit schools Brown Mackie Colleges, South University and Argosy University. While the for-profit college industry saw an increase in business during the early part of the recession, their numbers have dwindled greatly over the past few years. Since 2010, enrollment in EDMC’s schools has declined nearly 30% to about 112,400 students currently. The company announced it would be closing several of its campuses earlier this year, laying off some 1,200 employees within the next 2-3 years. Its stock prices have also plummeted, from $1.25 high at the end of last year to $0.09 in recent months.
In addition, new regulations from the Department of Education require for-profit schools to do a better job of preparing their students for employment in their field or face losing the money they receive from federal student loans. This indicates a willingness by the federal government to demand more of these companies. Let’s hope that it also signals the end of for-profit “diploma mills” as they have existed up until now.
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