About 80,000 former students will have their loans forgiven after the nation’s second largest for-profit education company, Education Management Corp (EDMC), reached an agreement with state attorney generals Monday.
The announcement came as a result of a multi-year investigation into the company’s recruitment practices, which the Department of Justice said violated federal regulations. The company was accused of giving its admissions personnel bonuses based on the number of students they enrolled.
These types of payments are prohibited under Title IV of the federal Higher Education Act. But, beginning in 2003, EDMC allegedly falsely told the U.S. Department of Education and various state offices of higher education that it was complying with Title IV regulations, and, as a result, collected federal grant and loan dollars.
In response to these claims, EDMC reached a settlement where it will forgive $102.9 million in debt owed by about 80,000 former students. These are students who left their schools within 45 days of their first semester, and whose final day of attendance was between Jan. 1, 2006, and Dec. 31, 2014.
Nearly 450 former students in Massachusetts are eligible for debt forgiveness for a total of $689,472. That averages to about $1,530 per student.
EDMC also reached a $95.5 million civil settlement with the Department of Justice. The federal government will share proceeds from the settlement, which is the largest ever involving false claims made to the Department of Education, with the whistle-blowers and the 13 states that participated in the case.
Massachusetts will receive about $75,000 from the settlement. Attorney General Maura Healey said this money will be given to students who used state loans to finance attending the New England Institute of Art in Brookline, which is one of the 110 schools EDMC operates.
Healey urged the Department of Justice, which received $52.6 million in the settlement, to also apply its proceeds directly to students. The federal settlement makes no specific provision to help students who still owe billions of dollars in federal student loans they took out to attend EDMC schools.
“Every single dollar recovered in this settlement can and should be used to help students struggling with loans from EDMC,’’ Healey said in a statement. “While this settlement sends a strong message to the predatory for-profit education industry, I urge the Department of Justice to apply these funds to bring down student loan balances immediately. As millions of students struggle with their college loans, it is our hope that the federal government will not continue to pursue borrowers victimized by this scheme for debt that has already been recovered by this settlement.’’
The company said in a release that it will soon notify students whose loans have been forgiven. In the meantime, the attorney general’s office is still pursuing a separate case against EDMC for using deceptive tactics to enroll students.