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Congressmen challenge Pittsburgh-based for-profit college chain's sale

Natasha Lindstrom
| Friday, June 23, 2017, 7:27 p.m.
In this file photo from June 2014, students worked on a video project at the Art Institute of Pittsburgh. The school is owned by Education Management Corporation, a for-profit college system that runs the Art Institute of Pittsburgh and other schools throughout the nation.
Sidney Davis | Tribune-Review
In this file photo from June 2014, students worked on a video project at the Art Institute of Pittsburgh. The school is owned by Education Management Corporation, a for-profit college system that runs the Art Institute of Pittsburgh and other schools throughout the nation.

Pittsburgh-based Education Management Corp.'s proposal to sell its for-profit college chain to a California nonprofit has spurred harsh criticism from federal lawmakers who fear the deal poses “significant risks for students and taxpayers.”

U.S. Sen. Elizabeth Warren, D-Mass., joined four members of Congress in sending a joint letter Thursday to several regional higher education accrediting agencies. The accreditors' approval is required for EDMC to finalize the $60 million deal this summer.

The letter — also signed by Sen. Kamala Harris, D-Calif., Sen. Dick Durbin, D-Ill., Sen. Sherrod Brown, D-Ohio and U.S. Rep. Rosa DeLauro, D-Conn. — urged accreditors to scrutinize the proposed “transaction of unprecedented size and scope” and determine whether it's in the best interest of students.

“We are deeply concerned that EDMC may be attempting to skirt federal accountability rules and protections for taxpayers by converting its institutions to nonprofit status while maintaining key elements of for-profit governance,” states the letter , “including a predatory operating and recruitment model, forced arbitration agreements as a condition of student enrollment, a pattern of spending more on marketing and recruitment than on instruction and a financial arrangement that allows institution leaders to personally profit from the institution's operation.”

EDMC officials declined to comment Friday.

In early March, EDMC announced plans to convert more than 60 for-profit postsecondary schools — including the Art Institute of Pittsburgh — into nonprofit ones managed by the Dream Center Foundation, a Los Angeles-based human services provider.

The Dream Center pledged to invest a percentage of school revenues into charitable causes, including help for homeless veterans, foster youths and high school dropouts who need help obtaining GEDs.

At the time, EDMC CEO Mark McEachen touted the deal as a fresh start or “rebirth” for the national network of schools, which combined have more than 60,000 students across 31 states.

McEachen has said he expects students to benefit from more stable tuition rates, new financial aid options and other advantages the Dream Center has as a tax-exempt entity.

In the letter dated Thursday , the group of skeptical lawmakers noted the Dream Center “has no experience managing an institution of higher education.”

They expressed concern that the deal will be financed by private equity firm Najafi Companies, part-owner of the University of Phoenix.

Lawmakers further raised concern over EDMC's “troubled legal history.”

The proposed nonprofit acquisition follows several years of financial struggles, public relations problems and sagging enrollment for EDMC, which enrolled almost 160,000 students at its peak in 2011.

In 2015, creditors assumed control of the company in exchange for erasing $1.3 billion in debt.

With McEachen at the helm, the new owners agreed to pay $95.5 million to settle a whistle-blower lawsuit that accused EDMC of paying recruiters based on the number of students they enrolled, a violation of federal law.

The pending sales deal to the Dream Center requires approval from each of EDMC's accreditation agencies as well as the U.S. Department of Education.

If approved, EDMC's institutions would be managed by a new nonprofit subsidiary, Dream Center Education Holdings LLC. Its inaugural director would be Brent Richardson, the former CEO of Grand Canyon University — which failed in its own push to convert to a nonprofit last year.

Natasha Lindstrom is a Tribune-Review staff writer. Reach her at 412-380-8514, or on Twitter @NewsNatasha.

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