The dispute between for-profit colleges and the government regulators has been simmering for a long time and has just boiled over again even as students prepare to go back to school. The reason for this is the lawsuit that has pulled up major players involved in a great fraud.
This is the first time ever that the federal government is involved in one of the cases pulling up for profit colleges. The complaint was filed against the Education Management Corp. (EDMC) by the Department of Justice.
As students of for-profit colleges are funded predominantly by student loans, there is an escalation in the fight against them. As compared to students at non-profit universities and colleges, for-profit students are more likely to default.
The complaint against EDMC is that they indulged in recruitment that is commission based which is against the federal law. Even before this, there have been incidents where for-profit colleges were targeted by the Obama administration. Just a few months back, these colleges were brought under new regulations that required them to meet certain benchmarks if they did not want to lose the federal funding universities and colleges.
The rate of default among students who go to for-profit colleges is alarming, almost double of the rate at public universities and colleges. According to Fastweb and FinAid, the financial aid websites publisher Mark Kantrowitz, high default rates is not really an indicator of anything wrong or misappropriate. High default rates are mainly due to the fact that they serve lower income and minority populations.
According to Mark Kantrowitz, those who drop out of college are more likely to default on loans than those who complete their education. “Gainful employment” regulation was instituted by the Obama administration in recognition of this trend.
Misleading marketing practices were addressed in the first phase of regulations. The second phase put forth three requirements. According to Association of Private Sector Colleges and Universities president and interim CEO, Brian Moran, these regulations are making for-profit colleges very unhappy.
The case against EDMC now seems like water under the bridge due to the new regulations says Kantrowitz. The government however says in its complaint that spans 122 pages that a boiler room sales culture has been created by EDMC.
The complaint says that recruiters were instructed to enroll students who did not quality. Some of them were not even able to write with clarity unable to write coherently and some were drug addicts. For the online courses, EDMC even enrolled students who did not have a computer.
Since the announcement of the lawsuit, stocks of EDMC fell by 14 percent.
Similar cases in the past have been settled out of court. We have to wait and see what happens this time. Hope it is taken all the way as this is the only way to find out whether something wrong was actually done or not. Taking this case all the way through will also pull up other such colleges that are skirting the rules. Hope government takes a strong stand this time.