October 21, 2011

The Facts About EDMC Omitted by Huffington Reporter

By Anthony J. Guida Jr., Senior Vice President, External Affairs, Education Management Corporation.

EXECUTIVE SUMMARY: “The October 15 Huffington Post article about EDMC is a sensationalized, biased and false account of who we are and what we do. First, the following corrections (which were provided in writing to the Huffington Post prior to publication) must be made.

This can be demonstrated by the following examples:

Misstated or distorted facts:

Assertion: EDMC’s policy is to use abusive and illegal recruiting practices, evidenced by a fraud complaint by the Department of Justice.

Fact: EDMC has never condoned unethical or illegal recruitment practices.

• EDMC has controls in place that are designed to ensure that employees follow our policies and the law. Our culture is built on strong values, student success, integrity, innovation and excellence. It is inevitable that there will be a few rogue employees out of the thousands we employ. What is important is that when unethical or illegal conduct is brought to the attention of the organization, immediate corrective action (up to and including termination of violating employee) is taken, as per our Code of Business Ethics and Conduct.
• It is also important to note that the lawsuit joined by the Department of Justice is not focused on education quality. Rather, the narrow legal issue in that case is limited to how EDMC compensated admissions personnel.

Assertion: EDMC’s going private transaction was predicated on the elimination of the so-called “50 percent rule” (The 50 percent rule prohibited colleges receiving federal student aid from offering more than half their courses or enrolling more than half their students through distance learning programs.)

Fact: Removal of this rule had no effect on EDMC’s operations.

• For more than 40 years, the vast majority of EDMC’s students have been enrolled at brick and mortar institutions. As of October 2010, only 27% of EDMC’s 158,300 enrolled students were enrolled in fully online programs.

Assertion: Default rates at EDMC’s institutions have increased substantially (two are cited, comparing 2008 to 2011), evidencing a drop off in student success.

Omitted facts: The biggest factor in loan default rates is the socio-economic status of the student, not the kind of school the student attends.

• Economically disadvantaged students default at similar rates, regardless of the type of school attended. Mark Kantrowitz, a respected non-ideological expert of educational data and former consultant to the Department of Education, has conducted studies that illustrate that default rates are inversely correlated to student demographics.
• The default rates of students who attend EDMC’s schools are consistent with rates at schools serving similar populations and have changed consistent with the changing demographics of EDMC’s students.

Assertion: Mr. Nelson somehow brought admissions compensation practices used at the University of Phoenix to EDMC.

Fact: EDMC’s admissions compensation practices were adopted by EDMC well before Mr. Nelson joined EDMC.

• EDMC CEO, Todd S. Nelson left the Apollo Group in January 2006, and did not join EDMC until February 2007. Although his agreement with Apollo precludes him from discussing the details of his departure, his decision to do so was a personal one, not as it was portrayed in this piece. Compensation practices at EDMC which are now at issue in the qui tam lawsuit were adopted in 2003, years prior to Mr. Nelson’s arrival.

Assertion: EDMC’s new owners sought a new team of executives to run the operations after it EDMC was taken private.

Fact: A new management team was not brought in to EDMC after it was taken private.

• EDMC’s key management was intact both prior to and for several years after Mr. Nelson’s addition to the existing management team.
• John R. McKernan, Jr. was appointed to the Board of Directors in 1999, was named CEO in September 2003 and Chairman of the Board in June 2006. Following Mr. Nelson’s addition in 2007, Mr. McKernan has remained Chairman of the Board.
• The Presidents of three of EDMC’s four education systems held those positions prior to the 2006 transaction. Similarly, EDMC’s SVPs of External Affairs, Marketing and Admissions Operations, Student Financial Services and its recently retired SVP of Academic Programs/Student Affairs all began their tenure with EDMC well before the 2006 transaction.

Assertion: Since the 2006 transaction, EDMC’s culture has shifted to focusing on maximizing revenue growth at the expense of student outcomes.

Fact: EDMC has enhanced its focus on the student experience and student success since the 2006 transaction.

• Over the last ten fiscal years (2002-11), EDMC has invested over $1 billion in facilities improvements, technology, and curriculum designed to enhance the student education experience and increase program offerings. Significantly, about two-thirds of that amount, or about $700 million, was invested during the five year period after the 2006 transaction.
• EDMC is providing a stronger-than-ever commitment to meeting the needs of its students and had the highest percent (62%) of operating expenses dedicated to education, student services and academic support over the past fiscal year, compared to other publicly traded education companies.
• EDMC’s 2009 graduation rate on a consolidated basis is 39%, which is comparable to four-year, degree-granting nonprofit institutions (36%) and better than four-year, degree-granting public institutions (33%) serving the same student demographic.

The bottom line: EDMC will never compromise in its commitment to the highest professional, ethical, academic, and legal standards. We ask that the principles of truthfulness, accuracy, objectivity, impartiality, fairness and public accountability likewise apply to those in the media who write about our Company, and our faculty and staff, students, and graduates.

Sincerely,
Anthony J. Guida Jr.

Anthony J. Guida Jr. serves as Senior Vice President — External Affairs. He oversees regulatory affairs and compliance, government and public affairs, and strategic development efforts.

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