A.G. Schneiderman Announces $102.8 Million Settlement with EDMC to Forgive Student Loans and Reform Recruiting and Enrollment Practices

NEW YORK – Attorney General Eric T. Schneiderman announced today that he, along with 38 other state attorneys general and the District of Columbia, reached a settlement with for-profit education company Education Management Corporation (EDMC) to significantly reform its recruiting and enrollment practices, and forgive more than $102.8 million in outstanding loan debt held by more than 80,000 former students nationwide. Approximately 1,828 former New York students will receive $2,328,185 in loan forgiveness.

“For-profit education companies that lure students using deceptive recruitment and enrollment practices must be held accountable,” Attorney General Schneiderman said. “EDMC preyed on the hopes and dreams of New York students, and ripped off taxpayers, who backed federal student loans that were destined to fail. Today’s agreement not only provides relief to a large number of former students through loan forgiveness, but requires that EDMC make substantial changes to its business practices to protect future students from being deceived.”

The settlement resolves a complaint, filed today in New York County Supreme Court, in which Attorney General Schneiderman alleges that EDMC violated state consumer protection laws by:  (a) using deceptive and misleading student solicitations touting educational benefits that were available to too few EDMC students; (b) targeting prospective students for high pressure recruitment, including many students EDMC knew or reasonably should have known would not likely benefit from an education at its educational institutions; (c) inaccurately claiming that certain of their programs were accredited by a programmatic accreditor necessary for a student to obtain licensure in their profession; and (d) misrepresenting job placement rates and graduation rates for students. With regard to job placement, EDMC misrepresented graduates who worked only temporarily as having been “employed,” based, for example, on a single day of work. EDMC also misrepresented graduates as having been “placed in field” although the employment in question was at below that of the graduates’ fields of study, such as a graduate with an Accounting diploma counted as “placed in field” based on employment as a cashier at a fast food restaurant.

EDMC, based in Pittsburgh, Pennsylvania, operates 110 schools in 32 states and Canada through four education systems: Argosy University, The Art Institutes, Brown Mackie College and South University. Its New York campus is The Art Institute of New York City located at 218-232 West 40^th Street in Manhattan.

The Consent Judgment mandates added disclosures to students, including a new interactive online financial disclosure tool called the Electronic Financial Impact Platform (EFIP), currently in development; bars misrepresentations to prospective students; prohibits enrollment in unaccredited programs; and institutes an extended period when new students can withdraw with no financial obligation. Under the terms of the Consent Judgment, EDMC must:

• Not make misrepresentations concerning accreditation, selectivity, graduation rates, placement rates, transferability of credit, financial aid, veterans’ benefits, and licensure requirements. EDMC shall not engage in deceptive or abusive recruiting practices and shall record online chats and telephone calls with prospective students.
• Provide a single-page disclosure to each prospective student that includes the student’s anticipated total cost, median debt for those who complete the program, the default rate for those enrolled in the same program, warning about the unlikelihood that credits from some EDMC schools will transfer to other institutions, the median earnings for those who complete the program, and the job placement rate.
• Require every prospective student utilizing federal student loans or financial aid to submit information to the interactive EFIP in order to obtain a personalized picture of the student’s projected education program costs, estimated debt burden and expected post-graduate income.
• Reform its job placement rate calculations and disclosures to provide more accurate information about students’ likelihood of obtaining sustainable employment in their chosen career.
• Not enroll students in programs that do not lead to state licensure when required for employment or that, due to lack of accreditation, will not prepare graduates for jobs in their field.
• Require incoming undergraduate students with fewer than 24 credits to complete an orientation program prior to their first class.
• Permit incoming undergraduate students at ground campuses to withdraw within seven days of the beginning of the term or first day of class (whichever is later) without incurring any cost.
• Permit incoming undergraduate students in online programs with fewer than 24 online credits to withdraw within 21 days of the beginning of the term without incurring any cost.
• Require that its lead vendors, which are companies that place website or pop-up ads urging consumers to consider new educational or career opportunities, agree to certain compliance standards. Lead vendors shall be prohibited from making misrepresentations about federal financing, including describing loans as grants or “free money”; sharing student information without their consent; or implying that educational opportunities are, in fact, employment opportunities.

Thomas Perrelli, former U.S. Associate Attorney General, will independently monitor the company’s settlement compliance for three years and issue annual reports.

The agreement will put in place a significant interactive online financial disclosure tool, the EFIP, which will be required for all prospective students who utilize federal student aid or loans. The EFIP is in the final stages of development by the U.S. Consumer Financial Protection Bureau and state attorneys general.

Based on a prospective student’s individual data, EFIP will produce a detailed financial report that includes the student’s projected financial commitment, living expenses and potential future earnings.

To receive automatic relief related to outstanding EDMC institutional loans, former EDMC students must have been enrolled in an EDMC program with fewer than 24 transfer credits; withdrawn within 45 days of the first day of their first term; and their final day of attendance must have been between January 1, 2006 and December 31, 2014.

The agreement is expected to provide an average of $1,370 per person in loan forgiveness.

In addition to the debt-relief described, EDMC also agreed to pay $95.5 million as part of a resolution of four separate whistleblower (“qui tam”) lawsuits brought on behalf of government entities. The allegations in those cases involved, among other things, EDMC defrauding government entities by illegally paying incentive-based compensation to its admissions recruiters, taking into account the number of students that they recruited. All of these cases were filed under the United States False Claims Act, and involved a fraud against the United States. One of these cases was also brought under the New York False Claims Act and the False Claims Acts (or similar statutes) of several other states. The whistleblowers in those cases were awarded a percentage of the recovery, as well as attorneys’ fees.

As part of the agreement, EDMC does not admit to the conduct alleged by attorneys general.

The case was handled by Assistant Attorney General Jeanna E. Hussey, Deputy Bureau Chief Laura J. Levine, Bureau Chief Jane M. Azia, all of the Consumer Frauds and Protection Bureau, Taxpayer Protection Bureau Chief Thomas Tiege Carroll, Senior Advisor & Counselor to the Attorney General Gregory Krakower, and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.