EDMC schools on federal list for poor financial management
Schools operated by Education Management Corp. made a federal watch list of colleges that are doing a poor job of managing their finances, threatening further damage to the Downtown company's reputation as it attempts to attract students and restructure its business.
Ten EDMC schools across the nation, including The Art Institute of Pittsburgh, are among 556 colleges and universities that the federal Department of Education said this week were under stricter oversight known as “heightened cash monitoring.” Overall, four Pittsburgh-area schools were on the list.
The more watchful eye does not necessarily mean an institution is in trouble, but should be considered a “caution light” for students and taxpayers, Undersecretary of Education Ted Mitchell said. It has no immediate bearing on the amount of federal money a school receives.
Still, the disclosure could invite increased scrutiny from accrediting bodies and make it more difficult to recruit students, said Trace Urdan, senior analyst at Wells Fargo Securities.
“It could potentially impact new student enrollment,” he said Wednesday. “That's the biggest risk.”
EDMC spokesman Chris Hardman said the disclosure had no impact on the company's restructuring plan or students' ability to access financial aid.
“We remain committed to helping students gain the education and skills they need to pursue meaningful careers, while meeting regulatory requirements as part of our continuous improvement mindset,” he said.
More than half of the troubled schools were for-profit colleges that could face tough questions from students and investors even as many, including EDMC, confront heightened regulatory scrutiny and deal with declining enrollment.
California-based Corinthian Colleges was forced to sell more than half of its 107 campuses last year to a nonprofit education entity established by student debt collector ECMC Group. Among those sold was Everest Institute in Pittsburgh, which was also on the Education Department's watch list.
A call to Everest seeking comment was not returned.
Pittsburgh Career Institute and Western Pennsylvania Hospital School of Nursing also made the list.
“I can say that West Penn Hospital School of Nursing's placement on the Department of Education's heightened cash monitoring list is related to a procedural issue and is not a matter of financial distress for the school,” said spokesman Dan Laurent.
Institutions can end up under heightened oversight for a variety of reasons: from late financial statements to accreditation issues or more severe problems. The Education Department did not disclose specifics for individual schools.
EDMC schools have been on heightened cash monitoring status since 2006 — a fact previously disclosed in regulatory filings — but the department had not made the full list of schools public until Tuesday.
The prevalence of for-profit schools on the watch list highlights the struggles facing the industry and could raise eyebrows among investors, said Kevin Kinser, a professor at the State University of New York in Albany who studies the for-profit education sector.
“This is about the money. Does this institution have the finances to cover its bills?” Kinser said. “These are financial matters that those people who are primarily considering for-profit institutions as investment vehicles are going to be paying attention to ... and asking some tough questions.”
The watch list's disclosure occurs at a critical time for EDMC.
The company completed the first phase of a two-part restructuring that would make creditors, led by investment firm KKR & Co., the majority owners in exchange for wiping out $1.1 billion in EDMC debt, leaving $400 million.
The second phase is expected to be completed this year.
KKR did not return a call for comment.
Declining enrollment contributed to a $664 million loss last year for EDMC, its third straight annual loss. A federal lawsuit over EDMC's recruiting practices could prompt hefty financial penalties.
Meanwhile, Connecticut-based hedge fund Marblegate Asset Management last year sued to stop the restructuring deal in hopes of recouping its $14 million investment. Both lawsuits are pending.
EDMC schools include The Art Institutes, Argosy University, Brown Mackie College and South University. It has 110 campuses across North America with 112,430 students and roughly 20,800 employees.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or firstname.lastname@example.org.