A For-profit College and Employee Compenstion

Inside Higher Ed has an interesting update to the lawsuit the U.S. Justice Department has against the for-profit college chain Education Management Corporation. As Doug Lederman writes:

The Justice Department’s formal intervention in the Education Management case — in which the attorneys general from numerous states also said they would join — accuses the Pittsburgh-based EDMC (which owns the Art Institutes, Argosy University and Brown Mackie Colleges, among others) of violations of provisions of federal law that prohibit colleges from paying their recruiters based purely on enrollment numbers. The incentive compensation regulations were put in place more than two decades ago — and were strengthened by the Education Department this year — in response to concerns that colleges were giving their admissions officers financial incentives to enroll students who needed federal financial aid but did not have the academic capability to benefit from a higher education.

Now Education Management Corporation certainly paid its recruiters based on enrollment numbers. That isn’t really a matter of dispute. As the company admitted:

Federal regulations issued in 2002 permitted companies to consider enrollments in admission officer compensation…. To ensure compliance with this regulation, EDMC worked closely with outside experts in both human resources and education law to develop a plan that required consideration of five quality factors along with enrollment numbers to determine salaries.

This wouldn’t exactly make the corporation blameless (such a justification seems about as morally valid as “well she said she was 18”) but it would put EDMC, technically, in compliance with the law. Thanks to the Bush administration’s weakening the law back in 2002, for-profit colleges actually could reward staff for enrolling more students. Technically, however, they couldn’t give staff bonuses only for enrolling more students. Justice argues that exactly how the company did business until recently.

Today colleges aren’t allowed to compensate employees on the number of students they enroll at all. The current lawsuit doesn’t access that rule, which has been in place for less than two months; it has to do with the company’s activities during an earlier, more lenient, period. The lawsuit argues that even in this permissive time the company was still violating the rules.

As Lederman explains, the lawsuit is based on the False Claims Act; in this case former students argue that by its actions Education Management Corporation has defrauded the treasury, and by extension the American taxpayer, out of tens of millions of dollars.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer