Is A For-Profit College Scandal The Real Reason Olympia Snowe Decided Not To Run?

A year ago, EDMC's stock dropped on news that the Obama administration was going to enforce strict regulation on for-profit schools. That was close! Thank heavens for lobbyists! This certainly sounds like a factor, if not the main reason, for

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A year ago, EDMC's stock dropped on news that the Obama administration was going to enforce strict regulation on for-profit schools. That was close! Thank heavens for lobbyists!

This certainly sounds like a factor, if not the main reason, for Snowe's decision not to run for reelection. Maybe it was the final straw, since Snowe was also facing a primary challenge from the tea party:

Last August, while Sen. Olympia Snowe, R-Maine, was in the midst of an intensive round of fundraising for her 2012 reelection bid, a four-year-old civil lawsuit alleging fraud by an education company in which she and her husband are heavily invested became public.

Nationally, most of the coverage of Snowe's decision to drop her reelection bid has focused on the centrist Republican's frustration with the polarized politics on Capitol Hill. But in Maine, a few newspapers have speculated that her husband's legal entanglements had a role in Snowe's sudden and surprising decision, which left her with more than $3 million in her campaign coffers and her party without a Senate candidate less than three weeks before the filing deadline for Maine's June 12 primary.

According to the senator's most recent financial disclosure form, she and her husband, former Maine Gov. John McKernan Jr., have investments worth between $2 million and $10 million in Education Management Corp., a Pittsburgh-based company that operates for-profit higher education institutions. McKernan is chairman of the board of directors of the company, now embroiled in a lawsuit in which the federal goverment, 11 states and the District of Columbia are seeking to recover a portion of the $11 billion in federal student aid that the education firm has received since July 2003.

Originally filed in April 2007 by a pair of whistleblowers, the lawsuit alleges that the company violated a federal law that prohibits schools from paying admissions officers based on the number of students they recruit and enroll. [Note: This is one of the illegal practices I saw where I worked. I found out after that my company was previously cited for this and was operating under a federal compliance order. Didn't matter, they did what they wanted.] Those numbers can affect a school's revenues because more students mean a school is potentially eligible for more federal aid dollars. The whistleblowers alleged, and provided documents indicating, that they were paid bounties for the number of students they enrolled.

The Justice Department's decision to intervene on Aug. 8 made the lawsuit, which had been under seal, public. In its complaint, Justice alleged that Education Management Corp. submitted "knowingly false, misrepresented, and/or improper certifications" to the Education Department, stating that it did not offer enrollment incentives to its admissions officers. Without those certifications, students enrolling at the the company's schools, which include Argosy University, Brown Mackie College and South University, would not be eligible for federal financial aid.

The complaint names Snowe's husband, noting that in December 2006, while he was the company's chief executive officer, McKernan personally signed certifications that Education Management Corp.'s schools complied with the ban on offering compensation to admissions officers based on the number of students they recruit.

Now here's where it gets interesting. Anthony J. Guida Jr., who serves on the board of the for-profit schools' trade association, the Association of Private Colleges and Universities (aka lobbying arm) is also a senior VP for regulatory affairs at EDMC. He was also appointed to the United States Department of Education’s Advisory Committee on Student Financial Assistance by... Nancy Pelosi. His term expired in 2011.

The company's CEO is Todd S. Nelson, the former CEO of the University of Phoenix. While there, he signed a $9.8 million settlement with the Department of Education for “systematically and intentionally” breaking the federal rules against paying recruiters for students. What a job reference, huh? The New York Times also states:

Education Management, which is 40 percent owned by Goldman Sachs, received more than $855 million in federal student aid in 2003-4, and more than $1 billion in 2005-6. According to the complaint, in the fiscal year ending June 30, 2010, it received more than $2.2 billion in federal student aid, representing 89.3 percent of its net revenue.

Perhaps that explains why the Obama administration caved on earlier promises to make for-profit colleges deliver on their promises to students - because so many well-connected people on both sides of the aisle were carefully interwoven throughout these very profitable organizations:

The story of how the for-profit colleges survived the threat of a major federal crackdown offers a case study in Washington power brokering. Rattled by the administration’s tough talk, the colleges spent more than $16 million on an all-star list of prominent figures, particularly Democrats with close ties to the White House, to plot strategy, mend their battered image and plead their case.

Anita Dunn, a close friend of President Obama and his former White House communications director, worked with Kaplan University, one of the embattled school networks. Jamie Rubin, a major fund-raising bundler for the president’s re-election campaign, met with administration officials about ATI, a college network based in Dallas, in which Mr. Rubin’s private-equity firm has a stake.

A who’s who of Democratic lobbyists — including Richard A. Gephardt, the former House majority leader; John Breaux, the former Louisiana senator; and Tony Podesta, whose brother, John, ran Mr. Obama’s transition team — were hired to buttonhole officials.

And politically well-connected investors, including Donald E. Graham, chief executive of the Washington Post Company, which owns Kaplan, and John Sperling, founder of the University of Phoenix and a longtime friend of the House minority leader, Nancy Pelosi, made impassioned appeals.

In all, industry advocates met more than two dozen times with White House and Education Department officials, including senior officials like Education Secretary Arne Duncan, records show, even as Mr. Obama has vowed to reduce the “outsize” influence of lobbyists and special interests in Washington.

The result was a plan, completed in June, that imposes new regulations on for-profit schools to ensure they adequately train their students for work, but does so on a much less ambitious scale than the administration first intended, relaxing the initial standards for determining which schools would be stripped of federal financing.

In addition to not wanting to deal with the political fallout, maybe Olympia Snowe was just tired of selling her soul. Maybe I give her too much credit, but at some point, some of these people have to be sickened by what they do.

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