Thursday, September 22, 2011

Swanson joins lawsuit against for-profit colleges

Minnesota Attorney General Lori Swanson announced Thursday that Minnesota would join a lawsuit against Education Management Corporation, owner of local for-profit colleges Art Institutes International Minnesota and Argosy College. The lawsuit alleges that EMC illegally paid recruiters bonuses for the number of students they recruited and seeks repayment of over $11 billion in federal financial aid received between 2003 and 2011. Since the False Claims Act, which is the basis of the federal lawsuit, allows for triple damages, this is potentially a $33 billion lawsuit.

While Minnesota's portion of the lawsuit only adds a measly $1.3 million in claims to the suit, the role of state aid in the financial structure of the for-profit college industry is vital. Federal regulations state that no more than 90% of a for-profit college's revenue can come from Title IV federal financial aid or it can lose financial aid eligibility. The 90/10 rule, as it is called, is meant to prevent for-profit colleges from existing solely as financial aid mills, but the rule is riddled with loopholes. Rep. John Kline has spearheaded efforts to modify or repeal the rule from his perch as Chair of the House Education and Workforce Committee. 

For example, Minnesota State Grant funds aren't federal aid, so they don't count toward the 90% cap. That means that every state aid dollar that goes to a for-profit school allows them to take another 9 dollars in federal financial aid. Therefore, the $1.3 million that EMC received in Minnesota State Grant funds allowed them to receive another $11.7 million in federal aid funds without violating the 90% cap. That's particularly relevant, since Argosy (one of the colleges named in the lawsuit) reports all of their campuses together for the 90/10 rule. As of 2008, Argosy got over 82% of its revenue from Title IV. The Minnesota State Grant money comes in handy as Argosy approaches the 90% cap.

Also, some forms of federal student aid don't count toward the calculation. The biggest one is college aid for military veterans. Not surprisingly, this has meant an aggressive push by for-profit colleges to recruit veterans, since every dollar in college assistance means they can take 9 more Title IV dollars without violating the 90/10 rule. The Star Tribune reports that EMC's most recent securities filing showed that they received 90.3% of their revenue from federal aid. 

Swanson's choice to join the suit is especially important since Minnesota is one of the most generous states in subsidizing for-profit colleges with state aid programs. Hopefully it will shine a light on their dubious recruitment practices and the outsized debt burdens their students bear. And maybe, just maybe, it will lead Minnesota to reinvest in the public higher education system that's seen its funding slashed over the last decade.

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