A trio of Senate Democrats on Monday sharply rebuked outgoing Education Secretary Arne Duncan for comments in which he downplayed alleged wrongdoing committed by Education Management Corp., the for-profit college chain state and federal prosecutors accused of systematically defrauding taxpayers out of at least $11 billion.
Duncan said Nov. 16 that government authorities hadn't determined that the company, also known as EDMC, had misled students during an alleged yearslong crime spree in which EDMC is said to have lied to the federal government about its eligibility to receive federal student aid when it falsely claimed it was in compliance with a federal ban on paying bonuses to recruiters based on student enrollment.
"To be clear, what was found here was not misrepresentation to students. It was breaking the law and lying to us," Duncan said after the Department of Justice announced a $95.5 million settlement with the company that resolved pending state and federal lawsuits. EDMC denied wrongdoing.
But lawmakers led by Sen. Elizabeth Warren (D-Mass.) excoriated Duncan for his "logically absurd" statement in a letter Monday, arguing that the federal government effectively turned its back on former EDMC students saddled with debt as a result of EDMC's alleged fraud.
"EDMC cannot be guilty of lying to federal officials about recruiting students unlawfully unless EDMC actually recruited students unlawfully," Warren and Sens. Dick Durbin (D-Ill.) and Richard Blumenthal (D-Conn.) said in their letter. "EDMC did not lie to the government in a vacuum -- it lied in the context of covering up a 'recruitment mill' that was specifically designed to enroll students using any means necessary and saddling them with debt."
The distinction is important because had federal authorities formally accused the company of deceiving students, Duncan effectively would be forced to cancel their Education Department-backed debt under a provision in federal law that aims to shield borrowers from having to make payments on fraudulently originated federal student loans.
Instead, former EDMC students have to navigate a complex process in which the Education Department wants them to effectively prove that they were duped into taking out loans to attend EDMC's schools, such as The Art Institutes, Argosy University, Brown Mackie College and South University.
Duncan repeatedly said in his November comments that his department was "open for business" if others wanted to provide evidence that EDMC defrauded student borrowers.
The Senate Democrats said they were "deeply troubled and surprised" by Duncan's statement. "The EDMC case appears to be a prima facie case where students should be eligible for such debt relief," the lawmakers said. They urged Duncan to discharge federal debts owed by allegedly defrauded EDMC students.
Duncan said in October that he would leave his post by the end of this month.
Dorie Nolt, his spokeswoman, defended the settlement by arguing that Education and Justice Department attorneys "negotiated aggressively" and said that Duncan's statement referred to the focus of the federal case, which was fraud against the government.
"The settlement does not provide proof of wrongdoing against individual students," Nolt added, though the Education Department "is ready to act on any evidence."
In their letter, the three Senate Democrats told Duncan and Attorney General Loretta Lynch that they had "serious concerns" with the "paltry" EDMC settlement: The company was allowed to settle the allegations by paying less than 1 percent of the amount it allegedly bilked from taxpayers, leaving them "severely shortchanged"; its executives escaped any kind of punishment, despite a recent Justice Department announcement that it would begin to specifically target executives for corporate crimes; and EDMC's schools will continue to enjoy a near free-flow of federal dollars despite state and federal prosecutors' belief that the company swindled taxpayers.
Nicole Navas, a Justice Department spokeswoman, didn't respond to a request for comment.
"Federal regulators appear to have obtained nothing for students, leaving defrauded students holding the bag for billions of dollars in federal student loans they incurred after being illegally pressured to enroll," the lawmakers said.
This story has been updated with comments from Dorie Nolt.