Education Management Corporation: The Enrollment Incentives Behind Four Whistleblower Cases

In the Education Management Corporation False Claims Act settlement, the company agreed to pay $95.5 million over allegations that it tied recruiter pay to enrollment while falsely certifying compliance with student-aid rules. The alleged contradiction ran from the admissions floor to the promises made to the government.

The Department of Justice announced the global settlement on November 16, 2015. It resolved four whistleblower cases against EDMC, with different government involvement, and included expenses for a state consumer-fraud settlement.

How Student Aid Made Recruiter Pay the Government’s Business

Education Management allegedly used false compliance promises to preserve access to the federal grants and loans that supplied most of its revenue. The incentive-compensation ban under Title IV of the Higher Education Act prohibited schools from paying recruiters based on their success in enrolling students. The government alleged that Education Management certified compliance while running a high pressure boiler room, with admissions staff paid purely by the number of students they enrolled.

At the time of the settlement, the Pittsburgh-based company operated the Art Institutes, South University, Argosy University and Brown-Mackie College. Across those school brands, enrollment exceeded 100,000 students.

The government alleged that the false certifications ran from 2003 through the settlement period. They went to the Department of Education and state higher-education offices to keep Education Management eligible for grant and loan money. The connection to government-funded student aid made the compensation system a payment issue.

Congress adopted the recruiting restriction to address the enrollment of unqualified students, high loan-default rates and wasted program funds, the Justice Department explained in its complaint announcement. In Education Management’s case, the government alleged that the pressure to enroll brought students into programs for which they lacked the necessary skills and qualifications, leaving unsustainable debt while the schools pursued revenue.

We see the contradiction in the government’s account: the company promised to keep enrollment incentives out of recruiting while allegedly building recruiter pay around nothing else. Some promise.

The Same Recruiting Incentive at University of Phoenix

University of Phoenix agreed to a $67.5 million settlement announced in December 2009 over whistleblower allegations that enrollment-based recruiter compensation violated the conditions for federal student-aid participation. The government declined to take over that case but supported the whistleblowers in court.

The parallel is the link between recruiter compensation and access to aid. A college’s pay practices can explain why admissions staff chase enrollment, while its participation promises explain why that conduct matters to public funding. Education Management’s resolution brought that same recruiting issue together with several separate whistleblower cases.

Whistleblower Cases With Different Government Involvement

The settlement resolved four federal qui tam cases. The United States and five states joined the recruiter-compensation case in Pittsburgh. Three other cases, two in Pittsburgh and one in Nashville, proceeded through the whistleblowers without the government taking them over. The Justice Department described those additional cases as involving various violations of Title IV of the Higher Education Act.

The recruiter-compensation case began with a former admissions recruiter. A former director of training for Education Management’s Online Higher Education Division later joined in an amended complaint. Together, their roles reached from the sales conversation to the instructions behind it.

What the Settlement Money Covered

The United States was allocated $52.62 million from the global settlement and said it would pay $11.3 million collectively to the whistleblowers in the four cases. That collective award came from the federal allocation.

The settlement announcement’s allocation also covered the participating states, whistleblower counsel and expenses for compliance with the state consumer-fraud settlement. Those expenses included an administrator and a voice-analytics system to record and analyze recruiters’ calls with students.

The compliance terms went directly to the sales conversation. Education Management had to provide detailed disclosures to students and operate under an administrator’s oversight. The agreement barred deceptive or misleading recruiting. Recording and analyzing recruitment calls put attention on what applicants actually heard.

In its complaint announcement, the Justice Department said the case sought to recover a portion of $11 billion in federal student aid that Education Management allegedly obtained through false statements. The eventual settlement amount reflected the company’s financial condition and ability to pay. We see the imbalance: billions allegedly obtained through false promises, then a settlement priced around what the company could afford. That is part of the story behind the settlement figure.

Separate Relief for Students

The District of Columbia and 39 states also reached a separate $102 million consumer-protection settlement over alleged misrepresentations in Education Management’s marketing. The District’s November 30, 2015 announcement kept that agreement separate from the False Claims Act settlement.

The District alleged that Education Management misled prospective students about accreditation, job-placement statistics, program costs and refund policies. Its consumer settlement provided forgiveness of loans the company had made to District students and court-ordered restrictions on marketing there.

The distinction follows the harm: false compliance statements concerned public funds, while misleading promises about the education concerned the students who bought it. We would lose half the story by treating all of that money as one payment for one wrong.

The Evidence Between Recruiter Pay and Student Aid

For an education insider, the useful connection is between how recruiting actually worked, what the school promised and the aid it received. Education Management’s case puts compensation and training knowledge alongside the certifications sent to government agencies.

That is why we examine the evidence connecting the practice to payment across the business. Compensation plans and payroll can show what drove recruiter earnings. Enrollment records can show the results those earnings tracked. Training materials can show what management expected, while certifications and aid records can connect those practices to public funding.

The alleged false certification was the bridge. Someone familiar with recruiter compensation might explain what a government-facing compliance statement concealed. Someone familiar with training might explain how management put the incentives into practice. The value of that knowledge comes from connecting it to the promise that kept aid available.

What Share Is Possible?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The collective award in this settlement shows how several whistleblowers’ cases can contribute to one resolution.

You Know How the Recruiting Worked

If you saw enrollment targets drive pay while the school promised compliance, speak to one of our Whistleblower Experts about the recruiting system you know. We work with you to build your strongest education fraud whistleblower case and bring in education-fraud whistleblower lawyers who understand student aid. We stay beside you from that first conversation through the case.