The Beginning Of The End Of For-Profit Colleges

Former for-profit college students have helped fuel the student loan protest movement. CREDIT: AP
Former for-profit college students have helped fuel the student loan protest movement. CREDIT: AP

Education Management Corporation or EDMC, announced it will gradually shut down 15 of 52 campuses of The Art Institutes, leaving 5,400 students without a college.

This comes after Corinthian Colleges closed its remaining 28 college campuses only last week. DeVry University also announced the closure of 14 campuses and Kaplan Inc. sold 38 Kaplan College campuses to Education Corporation of America. Enrollment is also falling for for-profits such as Strayer University and the University of Phoenix.

Regulation and oversight of the for-profit college industry has increased in recent years, with enforcement of the “gainful employment” rule, spurring The U.S. Department of Education to investigate job placement rates and dole out heavy fines to those misrepresenting career opportunities after college. The gainful employment rule required that to qualify for federal student aid, for-profit colleges would have to show that they prepare students for “gainful employment in a recognized occupation,” which is defined through a debt-to-income ratio.

A 2012 report by the Senate committee on health, education, labor and pensions found that Education Management Corporation had “some of the highest numbers of students leaving the company’s programs without completing a certificate or degree of any company examined.” The report also showed that Goldman Sachs owned 41.8 percent of the company and that 80 percent of the company’s funds came from the federal government.


A graduate of The Art Institute of San Diego, Sanders Fabares, who works as a website moderator, joined a petition to clear the debt of parents and students who attended The Art Institutes from 2003–2011. He and his wife both graduated from the school in 2006. He says that he and his wife are unable to save for retirement, buy a house or start a family because they were worried about $96,000 in student loan debt and had to work in food service jobs just to get by because the school’s much-touted job placement assistance was “almost nonexistent.”

“I was presented by the recruiter with job placement rates that were very high and pertained to getting a job in the media arts and animation industry,” he said. “I already had a four-year degree from the University of Arizona, but I dreamed of going into film.”

Fabares says that the courses were diverse but did not offer students a real focus that would allow them to become immersed in any one subject area, making him believe his degree would be difficult for employers to take seriously, but he was encouraged to stay and take advantage of the job placement program. He was also told he would have pay a very high fee to leave the program.

“I have always been dismayed by our treatment by AI and low quality of education that we received there, however it was not until recently that I became truly upset,” Fabares said, citing the Corinthian Colleges closures. “I then found that there is actually an enormous group of victims from for-profit schools all over our country. It was staggering and oddly comforting knowing that our desperate situation of being stuck in a debt cycle was not unique.”

The 2012 Senate report also showed that tuition at EDMC colleges tends to be higher than the tuition of public colleges with the same programs, and that academic leaders discussed tuition rises that may strike some students as “bait and switch.”


In October of last year, EDMC announced that it received notice from the Securities and Exchange Commission that it wasn’t in compliance with SEC rules that require timely reports after it delayed filing its annual financial report. Soon after, it delisted its common stock from the Nasdaq and now trades over the counter, which means they are no longer under the SEC’s filing obligations.

The company said the delay was due in part to the SEC’s division of corporation finance’s comments on its revenue recognition and bad debt reserve recorded on student withdrawals from school.

After EDMC’s statement, the Law Offices of Howard G. Smith announced it would investigative claims on behalf of those purchasing securities that the company was violating certain federal securities laws, There were concerns that the company overstated revenue by not “properly increasing its bad debt reserve upon student withdrawals” and manipulating federal student loan and grant programs to maintain the appearance of compliance with 2011 federal regulations, among other potential violations involved in its recruiting of students.

According to Zacks, other law firms have been investigating potential claims against the company, as of January. The Law Offices of Howard G. Smith are no longer pursuing the case, however, according to Howard G. Smith. ThinkProgress did not receive a response from other law firms contacted by the date of publication.