8/25/2011
The Obama administration and four other states, is accusing a private, for-profit college of unlawfully disbursing money to recruiters to enroll students in an $11 billion scam. This is the latest action in the long-running investigation of the recruitment techniques of the industry.
The Justice Department, along with the attorneys general of Illinois, Indiana, California and Florida on Monday joined the lawsuit against the Education Management Corp., a for-profit school based in Pittsburgh. They claimed that the company violated a 1992 law that prohibits for-profit colleges from paying incentive compensation to recruiters.
The law was passed due to reports of exceedingly aggressive sales methods in the industry that resulted in the enrollment of unqualified students and high default rates in student loans. This is the first time that the federal government intervened in a lawsuit which alleged a violation of the ban.
The company offer classes online, as well as in 105 physical locations in 32 US states and Canada. In the governments’ complaint, it claimed that the company time and again made false statements to hide its practices and collect $11 billion in federal and state fiscal aid, an amount which is said to be almost the entire revenue of the company.
The complaint also alleged that student enrollment was the only focus of its compensation system, and that the company directed recruiters to employ high-pressure sales methods. Some of these methods include playing on the psychological vulnerabilities of the applicant and exaggerating claims of career opportunities in order to enroll more students regardless of whether or not they are qualified.
