[This is the third and final part of our Higher Ed Watch series looking at what's gone wrong at the for-profit college giant Education Management Corporation. To read the first two posts, click here and here.]
For nearly 40 years, Robert Knutson, the founder of Education Management Corporation (EDMC), built up a for-profit higher education company that was focused on doing “everything we can to ensure that students are successful, and our education process is oriented to the needs of our students,” as he told the Wall Street Corporate Reporter in 2002.
But after Goldman Sachs and two other private equity firms acquired Education Management in 2006 for $3.4 billion, they set an entirely different mission for the company: achieving hypergrowth.
To accomplish this goal, the company’s new owners hired a group of executives from the Apollo Group who had been instrumental in the massive expansion of the University of Phoenix earlier in the decade but had run afoul of federal regulators over the tactics they used to achieve that growth. Despite these troubles, the former Apollo officials brought nearly the exact same playbook to EDMC, according to former Education Management employees, the U.S. Department of Justice, and other press reports.
As the Huffington Post reported last week, this new leadership team created a “cut-throat sales culture” that was “laser focused on hitting mandated enrollment targets.” These executives hired thousands of new recruiters and made sure that they knew that their jobs depended on getting students in the door and signed up for loans, even if they knew full well that the students were unqualified for the work and had little chance of succeeding.
"The drive for numbers has created a recruiting staff that could care less about the well-being or success of the students” they bring in, a recruiter for EDMC's South University told the Huffington Post, in the online publication's words. “They’re wolves; they’re hunters,” the recruiter said. “They have one objective: They’re there to make money and get students.”
In retrospect, what’s happened at EDMC should not have come as a surprise. As Goldie Blumenstyk of the Chronicle of Higher Education wrote soon after Goldman’s purchase of EDMC, “When private equity funds do the buying, they do so with an overriding strategy in mind: Acquire the college or company, often with a lot of borrowed money, find ways to make it bigger and more profitable, and sell it at a higher price, either to other private investors or through a public offering."
“Since most private-equity funds are organized as limited partnerships with 10-year lifespans,” she added, “they hope to pull off these sales in five to seven years.”
In other words, firms that do these types of deals are not invested in the long-term health and well-being of the corporations they purchase. Instead, their mission is to build the companies up as fast as they can so they can sell them off and make a killing.