After years of enduring government scrutiny and lawsuits, Pittsburgh-based Education Management Corp. is abandoning the for-profit business model and selling its operating schools to a Los Angeles-based nonprofit.
EDMC announced on Friday it will sell 31 Art Institute schools, as well as the South University and Argosy University educational systems, to Dream Center Foundation, a humanitarian organization affiliated with a Pentecostal church that funds programs across the country for underprivileged people.
All told, the deal will shift roughly 60,000 students and 15,000 employees at schools currently managed by EDMC to the Dream Center Foundation.
EDMC will remain as a for-profit corporate entity, headquartered Downtown on Fifth Avenue, to manage the winding down of nearly four dozen schools across its system that stopped accepting new students in recent years.
Terms of the deal were not disclosed, but both sides hope it will close by the end of the summer.
The sale is a remarkable turnabout for EDMC, which grew to become one of the largest corporate providers of higher education in the country. But the company, along with the for-profit industry as a whole, has been battered in the last decade by government scrutiny and lawsuits over its recruiting practices.
EDMC portrayed the deal as a “perfect fit” for current and future students.
“This is really a celebration,” said Mark McEachen, president and chief executive officer, in an interview. “We believe that, finally, the cloud will be lifted.”
Mr. McEachen said the Dream Center Foundation had an “expertise, experience and passion that we didn’t see anywhere else — and frankly we can’t bring.”
The Dream Center Foundation — a church mission that funds programs ranging from hunger relief and human trafficking shelters to transitional housing and job training services for homeless families — had been interested in purchasing a higher education company for at least three years, said Randall Barton, its managing director.
While much of the foundation’s mission is tied to the education system, Mr. Barton said, it wanted an institution of its own.
“You get someone off the street and clean them up and help them transform their life, but if you don’t have education programs, you’re not really going to make the next difference in their life,” Mr. Barton said.
Mr. McEachen said the sale completes his strategy of reviving the schools since he took the reins of EDMC in the fall of 2015.
First, he put an end to a legal nightmare that the company blamed for falling enrollment and its plummeting share price.
In 2011, the U.S. Department of Justice joined a whistleblower lawsuit that claimed the company illegally paid incentives to recruiters based on the number of students they enrolled. The suit demanded $11 billion in federal student loan money be returned and tarnished EDMC with allegations of fraud, deceptive marketing and steering students into loan debt they could never pay back.
In November 2015, EDMC settled the lawsuit, and other litigation involving numerous states, for about $100 million, admitting no wrongdoing.
The company has been fairly quiet since then — and that was by design. Mr. McEachen said the second step was to “calm everything down and operate.”
Several rounds of layoffs and closures came. Last May, EDMC laid off about 200 people, mostly administrative and support staff — including admissions, academic counseling and financial aid staff — in its online division, housed in the Strip District.
Mr. McEachen said he decided that some kind of sale, acquisition or partnership was the best course of action. With a permanent residence in southern California, Mr. McEachen said he knew the work of the Dream Center Foundation. It was not long before both sides agreed selling to the foundation was the best move.
Before talking with EDMC, the Dream Center Foundation, which operates 61 centers across 41 states, had been in talks with another for-profit education company that, as it turned out, had “too much baggage,” Mr. Barton said. EDMC had leaner operation and, Mr. McEachen said, a return to a “path of profitability.”
The most positive change for the organization is in the business model, the executives said.
Read more at EDMC sells schools to Los Angeles nonprofit.