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Department of Justice advances case against for-profit college group

by Adam Russett on August 10, 2011

The Department of Justice, along with four different states, has filed a multi-billion dollar lawsuit against the Education Management Corporation, which is the second-largest for-profit college group in the country, according to The New York Times

The main contention is that the college group shouldn't have qualified for the $11 billion in state and federal aid from July 2003 to July 2011. The maximum damages for the case could amount to $33 billion.

"The case is the first in which the government intervened to back whistle-blowers’ claims that a company consistently violated federal law by paying recruiters based on how many students it enrolled. The suit said that each year, Education Management falsely certified that it was complying with the law, making it eligible to receive student financial aid," The Times reports.

Goldman Sachs has a 41 percent stake in Education Management. The company owns 105 schools that enroll a total of 150,000 students. The spokeswoman for the company's legal team, Bonnie Campbell, is adamant in the denial of charges.

She points out that there was a 2002 regulation that allowed colleges to consider recruitment compensation regarding number of students who enrolled, as long as that wasn't the sole basis for the reward. The real issue is that if compensation becomes the sole focus of the recruiters, then unqualified students sign up for the school.

For-profit colleges enroll about 10 percent of all college students in the country, yet account for nearly half of student defaults on loans. Federal aid in 2010 made up nearly 90 percent of Education Management's net revenue.

The Atlanta Post reports that one of the most interesting facts about the case is that Goldman Sachs, which owns such a majority in the company, almost never hire. 

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