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Wednesday, February 29, 2012

EDMC fights on in court, Congress

Posted By on Wed, Feb 29, 2012 at 9:23 AM

The United States Department of Justice says it has never condoned the incentive-based recruiter compensation plan of Pittsburgh–based for-profit educator Education Management Corporation ... despite the company's claim to the contrary in a federal lawsuit.

On Feb. 3 EDMC filed a motion to dismiss a civil lawsuit filed by several states and the United States. At issue are allegations that EDMC had previously compensated its recruiters based on the number of students they enroll ... an approach the plaintiffs say violates federal law.

The plaintiffs, who include a couple of company whistleblowers, are seeking repayment of government financial aid paid for students to attend the company's various schools. The money at stake would likely be counted in the billions.

But as the Post-Gazette reported Feb. 6, EDMC claims that the government had actually endorsed the plan.

According to the P-G's Rich Lord:

EDMC in its brief filed late Friday reiterated that its compensation system was based only partly on the number of new students that a recruiter enrolled, so it didn't violate rules against pay plans based "solely" on enrollments. The system also took into account recruiter qualities including "professionalism, customer service, and business practices and ethics," EDMC wrote.

In a new wrinkle in its defense, EDMC noted that last year the Department of Education banned any consideration of enrollments in recruiter pay, thus "explicitly acknowledging in the process that the regulation in this case allowed salaries based in part on enrollment success."

In essence, EDMC argues that by banning any consideration of enrollments in setting pay, the federal government was confirming that its practices were, prior to the ban, OK.

But in a Feb. 17 response to that filing, the federal Department of Justice strongly disagreed with EDMC's assertions:

"The United States' complaint contains extensive evidence and allegations that EDMC was ... an 'unscrupulous actor' that circumvented the ban by seeking to camouflage incentive payments as salary," attorneys with the Justice Department wrote. "[B]ase compensation must be fixed rather than vary with the number of students as EDMC's plainly did ...

"EDMC's Matrix-based compensation scheme is not 'fixed compensation' because at every point in time admissions personnel are earning -- and know that they are earning -- specified amounts for the enrollments that they bring in, creating the precise incentives and associated harms that Congress acted to outlaw."

The government's full brief can be found here. EDMC's earlier filing is here.

EDMC has been in the news quite a bit recently. It has laid off 400 employees while in the middle of a massive stock repurchase program, and a move by Congress, led by Illinois Sen. Dick Durbin, to limit the amount that for-profit educators like EDMC can rake in off of veterans via the G.I. Bill.

But the for-profit educator hasn't been siting idly by. In addition to slugging it out in court, it has hired a highly decorated Marine Corp veteran to lobby legislators on Durbin's legislation.

According to a release from EDMC, the company has hired Lt. General Jack Bergman to "liaise with government leaders on ensuring that student-veterans have every opportunity to make a smooth transition to civilian life," and to "assist enlisted military and veteran students with meeting their educational goals in order to start the next phase of their careers."

"Veterans expect and respect straight forward, imaginative, quality education and training," General Bergman is quoted saying in the release. "EDMC will continue to meet and exceed veterans' expectations and I am very excited to play a role in that effort."

The statement also quotes Tony Guida, EDMC's senior vice president of External Affairs, asserting, "We are pleased with General Bergman's recognition of the importance of our programs' flexibility and convenience in ensuring that we are delivering a quality education that meets the needs of our country's men and women in uniform."

According to a release from Durbin's office, for-profit educators are barred from receiving more than 90 percent of their revenue from federal financial aid programs. But the G.I. Bill isn't currently counted toward that limit -- something Durbin wants that to change.

In a statement, he called the GI exemption "an outrageous loophole" and charged that "veterans and service members [are] being heavily recruited for the amount of additional federal money they can bring into the company. It's time the federal government started to better oversee and regulate these heavily subsidized for-profit schools."

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