Sources say that Education Management Corporation, one of the largest for-profit college firms in the nation, is prepared to settle a case by state and federal prosecutors accusing the company of fraudulent activities that resulted in it receiving $11 billion from taxpayers.
In the settlement, Education Management would be required to pay back $100 million, which comes out to less than 1% of the federal student loan money that it’s alleged to have taken in through fraudulent claims over the course of eight years, from 2003 through 2011. A provision of the False Claims Act states that the federal government could have gone after as much as three times the amount it was defrauded, with additional penalties possible. That would have put EMC on the hook for roughly $33 billion if the company was found guilty.
Government officials say the school enrolled students who were ineligible for federal aid and made false claims to lure other students into signing up, leaving them with thousands of dollars in student loan debt and with little hope of being able to pay it off.
The lawsuit against Education Management, which ran the Art Institute, Argosy and Brown, Mackie and Smith chains of for-profit colleges, was filed in 2011 after two whistleblowers drew attention to what they referred to as the company’s “boiler room-style sales culture.” These former employees claim that EMC paid illegal bonuses for enrolling students and then lied about the practice to government officials.
It’s highly unlikely the students who were enrolled fraudulently at EMC will receive any relief from the settlement, however. Federal law stipulates that if a student is defrauded into enrolling in a school, they can petition the Department of Education to have their loans canceled. But because the corporation won’t have to admit to any wrongdoing as a part of the deal, the Department of Ed won’t be required to consider individual petitions to discharge student loans.
Critics say that the settlement of the case and others where for-profit schools weren’t made to admit to wrong doing are clear evidence that they aren’t being filed with any real concern for their former students in mind. We need to see government prosecutors go after these companies and insist that they admit fraud or the Department of Education has to reconsider its requirements for a petition review. Only then will the students of unethical for-profit colleges see any true justice.
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If you feel you were defrauded by the school you attended or you are being treated poorly as a distressed borrower by your creditors, take the free challenge debt review to find out what options you have regarding your student loans.