The state of Minnesota is suing the nation's second-largest for-profit college company, alleging that two of its for-profit colleges -- Argosy University in Eagan and Art Institutes International in downtown Minneapolis -- unlawfully collected state taxpayer-financed student financial aid totaling more than $1 million since mid-2010.
For-profit colleges broke the law to get $1M in state aid, suit says
The state alleges that incentive payments to recruiters were based on enrolling students.
The suit, filed Thursday by Minnesota Attorney General Lori Swanson, contends that Pennsylvania-based Education Management Corp. (EMC) was ineligible to receive the state aid because the company paid incentives to its recruiters based on enrolling new students. That type of compensation is against federal law.
"Incentive payments by for-profit colleges to their recruiters are illegal because they can lead to a hard-sell atmosphere where students are sometimes hustled to enroll in expensive programs paid for by taxpayer-backed student loans," Swanson said in a statement announcing the suit.
A spokeswoman for EMC didn't immediately respond to a request for comment. However, the company has called the allegations "flat-out wrong" and said its compensation plan was legal.
Argosy and Art Institutes International together received at least $1.288 million in state student aid under Minnesota's student financial aid programs since July 1, 2010, according to the attorney general's office. That represents nearly 1,300 financial aid awards.
Argosy offers programs in psychology, marriage and family therapy, education, business and health sciences. Art Institutes International offers programs in design, media arts, fashion and culinary arts.
Their websites list annual tuition and fees at more than $16,000 at Argosy and more than $23,000 per year at Art Institutes International.
EMC receives 90.3 percent of its revenue from federal student aid, according to its 2011 annual report.
5 other states join suit
About 2,000 for-profit colleges enroll about 11 percent of all higher education students but receive about 25 percent of all federal financial aid, totaling about $32 billion per year, according to the U.S. Government Accountability Office.
Minnesota joins in the suit with Florida, Indiana, Kentucky, Illinois and California.
The Associated Press contributed to this report. Paul Walsh • 612-673-4482
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