EDMC's for-profit schools under scrutiny for recruiting practices
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The Art Institute of Pittsburgh building on the Boulevard of the Allies, Downtown.
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WASHINGTON -- The man who drove the University of Phoenix to dizzying growth amid a high-pressure and possibly illegal culture of student recruitment is repeating the script at Pittsburgh-based Education Management Corp.
In more than four years running for-profit education behemoth the University of Phoenix, Todd S. Nelson saw enrollment nearly triple and profits quadruple.
He also oversaw student recruitment tactics that eventually cost the company dearly in payments to the federal government and lawsuit plaintiffs.
Mr. Nelson was forced out in January 2006 by the company's board, with its founder later saying the decision was due in part to Mr. Nelson's preoccupation with Wall Street performance over the company's health.
A year later he took over Education Management Corp., and the result has been remarkably similar. Fueled by online students, EDMC has exploded into the second biggest for-profit college company in the country, behind only University of Phoenix parent Apollo Group, the godfather of the genre.
It also has been targeted by lawsuits similar to those against Apollo, with whistleblowers telling of a pressurized sales culture that they allege violates federal law.
The federal government, too, is scrutinizing EDMC and the entire industry, which relies primarily on taxpayer dollars in the form of federal loans and grants.
EDMC, which operates The Art Institutes and other schools, has vigorously defended itself against the lawsuits and lobbied against stiffer government regulation. Mr. Nelson was not made available for an interview for this story. EDMC spokeswoman Jacquelyn Muller wrote in an email that Mr. Nelson's "focus, as always, remains on the comprehensive health and vitality of the overall organization."
Ms. Muller pointed out that EDMC devoted 62 percent of its operating expenses to education and student support services, more than any other major for-profit education company.
The accusations facing EDMC are similar to those facing the entire for-profit education sector.
Also, the compensation system now under scrutiny by the Department of Justice was put in place in 2003, before Mr. Nelson's arrival. Ms. Muller wrote in an e-mail that the company made "minor modifications" to the recruiter pay structure after Mr. Nelson took over that were reviewed by an attorney to make sure it is in line with federal requirements.
A comparatively young Mr. Nelson rose quickly through the Apollo ranks, becoming president in 1998 and CEO in August 2001 at age 42, replacing the company's founder, John Sperling. At that time, the company reported revenues of $769 million for the year, with a $108 million profit. It enrolled 124,800 students.
First Published June 12, 2011 12:00 am
