For-profit faces 'cash-for-recruitment' lawsuit

A multi-billion-dollar lawsuit against one of the largest for-profit higher education providers in the US has reignited a row over the expansion of the sector in the UK.

Education Management Corporation is being sued by the US Department of Justice under the False Claims Act for federal education funds it claimed between 2003 and 2011.

The company received $11 billion (£6.75 billion) over the period, but it is alleged that some of the funds were used inappropriately to pay bonuses to recruitment staff on the basis of the number of students they pulled in. The act entitles the government to seek to recover three times the "damage caused" if it can prove its case.

In a statement, the Department of Justice accuses Education Management of falsely providing assurances that it was not issuing financial incentives tied to the number of students recruited by staff. Five state governments have also announced their intentions to join the case as plaintiffs.

The size and scale of the lawsuit is unprecedented; however, a similar case brought against the Apollo Group resulted in a $78.5 million settlement in 2009.

A spokesman for Education Management said that the government's claims were "flat-out wrong".

Although the company does not currently have a foothold in the UK, David Willetts, the universities minister, met representatives of the firm in July last year.

Sally Hunt, general secretary of the University and College Union, claimed that the lawsuit was "deeply embarrassing" for the UK government. "It is a disgrace that ministers are contemplating giving taxpayers' money to these characters while starving our public universities and colleges of funds," she said.

Howard Hotson, professor of early modern intellectual history at the University of Oxford, questioned the wisdom of "rolling out the red carpet" for for-profit providers.

Calling the US lawsuit "a shot across the bow of the whole industry", he said it was evidence that the US government now believed the "for-profit university gold rush" needed to be "radically reined in".

"To invite for-profit corporations such as these to hoover up a significant share of the UK university sector is to gamble the future of one of the world's best university systems on a model that US experience has shown to be highly inefficient, ill-suited to serving the public good and riddled with problems," he said.

A spokesman for the Department for Business, Innovation and Skills said its aim was to encourage new providers that could offer wider choice, quality teaching and good value. "Discussions have taken place with many interested parties as part of the policy development process," he said.

"In the higher education White Paper, we set out our proposal for a new regulatory regime for all institutions wanting to be recognised in the English higher education system."

sarah.cunnane@tsleducation.com.