Company Operating For-Profit Colleges in NC will Forgive $102 Million in Loans

Company Operating For-Profit Colleges in NC will Forgive $102 Million in Loans
Image: Pexels
November 17, 2015

More than 80,000 students who attended for-profit schools in North Carolina and other states will have more than $102 million in private student loans forgiven under a landmark settlement to change the way the schools recruit and enroll students.

Along with forgiving millions in loans, Education Management Corporation (EDMC) will have to provide to students accurate disclosures as to how much their education will cost and their earning potential once they graduate. Schools run by the company are also banned from offering unaccredited classes that don't lead to state licensure.

"Students who enrolled in school but got little more than debt to show for it deserve to have these loans forgiven," North Carolina Attorney General Roy Cooper said in a written statement. "This settlement sets a new standard for for-profit colleges to give students clear, accurate disclosures about what they'll pay, what they'll owe, and how much they could earn."

EDMC, based in Pittsburgh, PA, operates 110 schools in 32 states and Canada through four education systems: Argosy University, The Art Institutes, Brown Mackie College and South University. EDMC operates campuses of The Art Institute in Raleigh and Charlotte.

North Carolina and several other states began investigating EDMC in 2014 based on complaints from students that the company's courses were more costly than they had been led to believe, did not transfer as they had been told they would, and did not lead to the high-earning jobs promised by recruiters.

The settlement with EDMC will mean about $102.8 million in relief for nearly 80,800 students nationwide, including approximately $4.1 million in student debt relief for about 2,900 North Carolinians. Eligible students are expected to get an average of $1,400 in loan forgiveness per person under the settlement.

The loan forgiveness benefits students who enrolled at EDMC with only limited previous college experience and quickly dropped out without gaining anything from the school other than debt. Under the settlement, students who enrolled in an EDMC program with fewer than 24 transfer credits and dropped out within 45 days between January 1, 2006 and December 31, 2014 will have private loans issued by the school forgiven. Students who meet these criteria will automatically have their loans forgiven.

In general, students at for-profit schools like those run by EDMC take on more debt, are less likely to graduate, and are more likely to default on their loans than students at other schools, according to data from the U.S. Department of Education.

The settlement includes significant reforms to the way EDMC recruits and enrolls students and is expected to set a precedent for other for-profit colleges. Under the agreement, EDMC must give students accurate information about the total cost, average debt, default rate, job placement rate, average earnings, and ability to transfer credits associated with its programs.

Among the reforms required by the settlement, EDMC must:

  • Develop an interactive electronic disclosure tool to give students accurate information on likely debt and earnings if they enroll in an EDMC program
  • Accurately calculate job placement rates used to market programs to students.
  • Require orientation for new students who don't have much prior college experience.
  • Provide a risk-free trial period during which students who enter with fewer than 24 credits can withdraw from an EDMC program for a full refund (7-day trial for on-campus programs, 21-day trial for online programs).
  • Stop offering unaccredited programs that won't lead to state licensure.
  • Take responsibility for third-party lead generators that market their programs.

Thomas Perrelli, former U.S. associate attorney general, will independently monitor EDMC's settlement compliance for three years and issue annual reports.

EDMC also agreed to pay $95 million to settle a separate federal whistleblower lawsuit under the False Claims Act. In that case, brought by the U.S. Department of Justice on behalf of the Department of Education, the government alleged that EDMC illegally paid its admissions recruiters based on the number of students they recruited.