AID’s Statement on Justice Department joining lawsuit against EDMC: A week ago today, the federal government joined

a class action lawsuit against the Education Management Corporation ("EDMC"). Apparently a number of states have already joined as well, or will be joining shortly. This naturally caught my attention, as the Chairman of EDMC's corporate board is former Maine Governor John "Jock" McKernan, who also happens to be Senator Snowe's husband. I was at first hesitant to comment on this story, but it's simply too important not to be addressed. For the sake of context, EDMC and other "for-profit college" umbrella entities live off federal student loan aid: they are essentially to those taxpayer-guaranteed and -subsidized loans much like what Fannie Mae and Freddie Mac are to mortgages, and like them they demonstrate why federal subsidies distort markets to the advantage of no one but these kind of intermediary entities that almost certainly wouldn't even exist without them. According to no less conservative and objective a source than the New York Times, "[f]or-profit schools enroll about 12 percent of the nation's highereducation students yet receive about a quarter of all federal student aid; their students account for almost half of all defaults. In general, these institutions get more than 80 percent of their revenues from federal student aid." What makes EDMC and its ilk arguably even worse than Fannie and Freddie is that, while mortgage borrowers have access to all sorts of remedies to defray or mitigate their debts, federal student loans cannot even be discharged in bankruptcy, and so stay with their borrowers for life, even students who never graduate. The lawsuit alleges that EDMC illegally made a practice of paying recruiters based on the number of students they enroll. The more students enrolled, the more federal money sent to EDMC, but also the more dropouts and the more defaults. The students lose and the taxpayers lose: only EDMC gains. I'm not going to speculate about what the outcome of pending litigation might ultimately be. I'm going to hope that Senator Snowe has made every disclosure required by the Senate Ethics Rules, as well as disqualified herself from any votes that might present even the appearance of a conflict of interest: I don't have that information yet, and I'll give her the benefit of the doubt. But even if nothing illegal or unethical was done by anyone, supporting the legislation that's made this kind of business possible calls Senator Snowe's judgment into question. If Senator Snowe believes the people of Maine want her sponsoring this kind of dubiously ethical legislation, it's time she got a wake-up call.

Yet another example of why its Time for Snowe to Go!

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