BANGOR, Maine — A for-profit education company at one time led by former Maine Gov. John McKernan will pay $95 million to settle a federal whistleblower lawsuit, it was announced Monday.
In a separate action, Education Management Corp., or EDMC, also agreed to forgive $102.8 million in outstanding loan debt held by more than 80,000 former students — including $229,748 in loan forgiveness for nearly 245 former students from Maine, according to a news release issued by Maine Attorney General Janet Mills.
Based in Pittsburgh, Pennsylvania, the company operates 110 schools in 32 states and Canada through four education systems, including Argosy University, The Art Institutes, Brown Mackie College and South University.
A for-profit college differs from a traditional college or university in that it is operated by a private business.
Filed under the False Claims Act, the federal whistleblower lawsuit was brought against EDMC in 2011 by the U.S. Department of Justice on behalf of the Department of Education.
In the lawsuit, the government alleged that EDMC illegally paid incentive-based compensation to its admissions recruiters tied to the number of students they recruit.
The separate agreement among 40 attorneys general in 39 states and the District of Columbia and the Department of Justice, through a consent judgment filed Monday, mandates added disclosures to students, bars misrepresentations to prospective students; prohibits enrollment in unaccredited programs; and institutes an extended period when new students can withdraw with no financial obligation.
As part of the agreement, the company does not admit to the conduct alleged by the attorneys general but does agree to change its business practices.
Thomas Perrelli, former U.S. associate attorney general, will independently monitor the company’s settlement compliance for three years and will issue annual reports.
Students who will receive automatic relief related to outstanding EDMC institutional loans must have been enrolled in an EDMC program with fewer than 24 transfer credits, withdrew within 45 days of the first day of their first term, and their final day of attendance must have been between Jan. 1, 2006, and December 31, 2014.
The agreement is expected to provide an average of $1,370 per person in loan forgiveness.
The agreement aims to address consumer complaints through significant reforms to the organization’s recruiting and enrollment practices, according to Mills.
“This action holds EDMC accountable for what we allege were unfair and deceptive recruitment and enrollment practices,” she said.
“EDMC’s practices were unfair to our students and unfair to our nation’s taxpayers who backed many of these federal student loans that were destined to fail,” Mills said. “This is a rigorous agreement that not only provides some relief to a large number of former students through loan forgiveness but also ensures that the company will make substantial changes to its business practices for future students.”
Among other things, the agreement will put in place a significant interactive online financial disclosure tool required for all prospective students who use federal student aid or loans.
The online system, called the Electronic Financial Impact Platform, is in the final stages of development by the U.S. Consumer Financial Protection Bureau and state attorneys general.
Based on a prospective student’s individual data, the online tool will produce a detailed financial report that includes the student’s projected financial commitment, living expenses and potential future earnings.
The multistate investigation began in January 2014 after state officials received numerous complaints from current and former EDMC students.
“Our investigation gave us a clear picture of how EDMC lured prospective students into its programs and how many students left the program with unfulfilled promises and oftentimes tremendous debt,” Mills said. “This agreement addresses our biggest concerns about the company’s business practices and puts in place new transparency and accountability.”
Former Gov. McKernan, who is married to former U.S. Sen. Olympia Snowe, became a director of EDMC in 1999 and was board chairman from June 2006 through August 2012. He was the corporation’s CEO from September 2003 through February 2007. He originally was named a defendant in the lawsuit but his name eventually was dropped.
Between 2003, when McKernan became CEO of EDMC, and March 2012, the firm received $11 billion in federal grants and loans that students have used to pay their tuition, according to the complaint filed for the federal whistleblower case.
No longer on the company’s board, McKernan now is a senior adviser to the U.S. Chamber of Commerce.
An email seeking comment from McKernan was not immediately returned Monday evening.