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Education Management CEO praises back-to-basics strategy

Thursday, Feb. 28, 2013, 12:01 a.m.
 

Students enrolling at the Art Institute of Pittsburgh before this fall will not be hit with a tuition increase through at least 2015 as Education Management Corp., owner of the for-profit school, seeks to restore its fundamentals, an executive told the Tribune-Review on Wednesday.

The pledge to keep down costs represents one part of the Downtown-based company's strategy to restore its reputation so that graduates are proud to put a school bumper sticker on their cars, said Edward West, CEO of EDMC since July.

“The priority is around student success and achievement,” West said. “Financial results, the stock price and all that will be derived. We just need to make sure we're getting back to consistently delivering for student success and achievement.”

After years of strong profits driven by phenomenal growth in its number of schools and students, EDMC's stock price dropped the past year as enrollment fell and government scrutiny increased. The company has 2,400 of its 23,000 employees in Pittsburgh.

As the nation's second-largest, for-profit educator with 110 schools, EDMC needs to improve retention and graduation rates, cut education costs, diversify its revenues so that it doesn't rely as heavily on federal grants and make employees happier, West said.

That plan meshes with the national trend among for-profit schools, said Steve Gunderson, president of the Association of Private Sector Colleges and Universities, a Washington trade group. Enrollment spiked at the start of the recession but fell because students are wary of taking on debt without the promise of a job, he said.

“A lot of these schools are doing what EDMC is doing right now: They're making the changes necessary to change their reputations,” Gunderson said.

EDMC expects to maintain its size, if not expand. The company plans to open schools at two locations this year and set a goal of increasing its alumni from 360,000 to more than 1 million by the end of the decade.

The company experienced rough turns over the past year:

• Stock prices fell about 80 percent. The stock closed on Wednesday at $3.65, down 10 cents, compared with $19.12 a year ago.

• Profit in the October to December quarter dropped 51 percent over the year, mainly because of falling enrollment. Earnings dropped to $31 million, or 25 cents a share, from $63 million, or 49 cents a share.

• New enrollment fell 21.9 percent to 24,000 last quarter, compared with 30,700 in the quarter a year ago. Revenue fell 11 percent, to $655 million from $737 million.

The federal government and 11 states seek the return of more than $11 billion paid in federal student aid over several years. A whistle-blower lawsuit claims EDMC improperly paid recruiters based on the number of students they enrolled.

U.S. District Judge Terrence McVerry in May threw out the plaintiff's claim that the company's compensation policy violated the ban on incentive recruiting tactics but allowed the lawsuit to proceed on the claim that the policy disguised the company's actual payment practices.

A separate lawsuit filed by a second whistle-blower makes similar claims.

West said EDMC has not set aside money to pay out possible judgments: “We feel these cases are wholly without merit.”

Despite its financial outlook, EDMC's 51 Art Institutes have not raised tuition in three years and the company plans to continue that, West said. It plans to announce on Monday that students who enroll at the Art Institute of Pittsburgh by fall will not pay higher tuition through the end of 2015. Tuition there averages $18,000 a year.

“In higher ed, that almost sounds like an out-of-body experience,” West said.

Counting all costs, undergraduate students at the Art Institute of Pittsburgh pay about $30,000 a year, according to the Department of Education. About 43 percent of bachelor's degree students graduate within six years, and 23 percent default on federal loans within three years of starting to make payments — higher than the national average of 13.4 percent.

Trib Total Media staff writers John D. Oravecz, Tom Olson and Brian Bowling contributed to this report. Andrew Conte is a staff writer for Trib Total Media. He can be reached at 412-320-7835 or andrewconte@tribweb.com.

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