Strayer University To Buy Jack Welch Management Institute

WASHINGTON -- Strayer University, the Northern Virginia-based for-profit college, is getting bigger even as its profits are down. Strayer, with more than 54,000 students, a large online program and more than 90 campus locations in 23 states and the District of Columbia, is buying the Jack Welch Management Institute, an online for-profit program started by former General Electric Chairman Jack Welch.

Strayer Chief Executive Robert S. Silberman said in a media release that buying JWMI, which has about 200 students, will allow Strayer to "offer students an executive MBA program that combines a first-rate business education with the highest level of academic quality and rigor."

As has been widely reported, Strayer's profits and its enrollment are both down.

Reuters chalks up Strayer's declines in enrollment and profits to new federal rules on student debt that "forced it to tighten admission standards." According to Silberman, during Strayer's last earnings call, 75 percent of Strayer's revenues come from federally-insured student loans.

About those loans: In August, a former Strayer employee named Joseph Mendelsohn -- who worked at a Strayer campus in Tennessee -- filed a whistleblower suit in a Tennessee federal court against the university relating to federal loans. Mendelsohn claims in the suit that the campus director, Juvonda Dowel, "was creating and forging false student applications to Strayer University through the Free Application for Federal Student Aid."

The suit continues: "Dowell improved her standing with the university by bringing in volume applicants and the university, in turn, receives income from students in the form of federally subsidized financial aid such as Federal Pell Grants, etc."

These are claims that sound suspiciously similar to the sort of bad behavior vis-a-vis federal loans that the Government Accountability Office found was rampant at for-profit colleges in its 2010 report.

Mendelsohn claims in his suit that Strayer fired Dowel after he reported her to the school's internal auditors, but that he was then fired for having blown the whistle.

Strayer has moved to dismiss Mendelsohn's case. A case management hearing is scheduled for Wednesday. A previous case against Strayer filed in federal court in Virginia by another former employee, Magdalis Lopez -- who claimed that the school was making fraudulent claims to get at federal loan money -- was dismissed. Lopez voluntarily dismissed the subsequent appeal.

Strayer's purchase of the Jack Welch Management Institute is expected to be complete by the end of 2011. The purchase price for JWMI is reportedly $7 million, of which Strayer will post 70 percent of the funds, and Welch the other 30 percent.

JWMI was previously part of Cleveland-based for-profit university Chancellor University. The Wall Street Journal reports that Chancellor's problems with accreditation, and the school's financial difficulties, led to Welch bringing JWMI to Strayer.

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