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EDMC to close quarter of its Art Institute campuses, but Pittsburgh's spared

| Wednesday, May 6, 2015, 3:15 p.m.
Edward West, president and CEO of Education Management Corp., told employees in a letter that the closing of 15 Art Institutes are part of a larger “transformation” at EDMC, where enrollment at its four college brands has declined 29 percent since 2010 to 112,430. The Art Institutes account for half of the enrollment at EDMC colleges.
Edward West, president and CEO of Education Management Corp., told employees in a letter that the closing of 15 Art Institutes are part of a larger “transformation” at EDMC, where enrollment at its four college brands has declined 29 percent since 2010 to 112,430. The Art Institutes account for half of the enrollment at EDMC colleges.

Education Management Corp. is closing 15 Art Institutes, sparing the Pittsburgh campus, in the first major move by the troubled operator of for-profit colleges to slash expenses since its creditors swapped $1.3 billion in debt for control of the company.

EDMC on Wednesday notified the schools, which make up more than a quarter of its Art Institute campuses, to stop enrolling students immediately and close once the 5,432 students graduate or transfer to other schools.

The closures, which could take up to three years, highlight the challenges the Downtown-based company has faced as declining enrollments and tightened federal regulations hurt the for-profit college industry.

CEO Edward West told employees in a letter that the cuts are part of a larger “transformation” at EDMC, where enrollment at its four college brands has declined 29 percent since 2010 to 112,430. The Art Institutes account for half of the enrollment at EDMC colleges.

“As difficult as this decision has been, it is a step that will help us create a stronger organization that is better positioned to provide the educational value our students expect and deserve,” West said.

Federal rules that go into effect in July require for-profit colleges to prepare students better for “gainful employment” or risk losing federal funding for student loans.

One campus in Pennsylvania — The Art Institute of York — will be closed. The fate of the remaining 36 Art Institutes, including the one Downtown, and 57 other EDMC schools is uncertain.

About 1,200 employees, including 200 immediately, will either lose their jobs or find a position at another EDMC school, said spokesman Chris Hardman. The schools being closed had below-average enrollment, and a few were in markets where EDMC has other colleges, Hardman said.

Hardman would not say whether other schools were slated for closure or whether more layoffs are planned. Until for-profit colleges find a way to boost enrollment and lower costs for students, more cuts are likely, said Kevin Kinser, a professor at the State University of New York in Albany who studies the for-profit education sector.

“From an industry perspective, I don't think that we have (hit bottom) yet,” Kinser said. “Stock prices are in flux; enrollment is still sketchy in many places.”

EDMC and other for-profit colleges have struggled financially because of declining enrollment since the recession and as regulators cracked down on recruiting practices that tied recruiters' pay to the number of students they enrolled.

The industry has endured criticism regarding questionable practices and for saddling students with large debts for careers that did not earn them enough money to repay the loans. A rule that goes into effect this summer threatens to cut federal funding for schools if their graduates' annual loan payments exceed 8 percent of their total earnings.

The requirement will affect all EDMC schools, including Argosy University, Brown Mackie College and South University. But Art Institutes were particularly susceptible because of the types of programs they offer, such as culinary or animation, said Trace Urdan, an analyst at Wells Fargo Securities.

The low wages that culinary students would earn as prep cooks wouldn't immediately justify the high cost of their educations, Urdan said. EDMC might have to be more choosy with the students it enrolls and select only the most talented applicants who stand the best chance of earning a decent wage after graduation, Urdan said.

Declining enrollment at EDMC schools has led to three consecutive annual losses. But the company has legal problems, too. A federal lawsuit over EDMC's recruiting practices could cost the company billions of dollars in penalties. Meanwhile, Connecticut-based hedge fund Marblegate Asset Management last year sued to stop a restructuring deal in hopes of recouping its $14 million investment. Both lawsuits are pending.

EDMC is not the only for-profit education company that is struggling. Corinthian Colleges Inc. filed for bankruptcy this week after closing its remaining 28 career schools. Two weeks ago, DeVry University announced that it would close its Pittsburgh campus and 13 other locations, making them online-only, after reporting declining revenue and enrollment for the most recent quarter.

Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or cfleisher@tribweb.com.

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