How It Feels When Students Stand Up to the Department of Education and Win

Meaghan Bauer knew something was wrong, so she stood up and fought back. As a result, she’s helping protect thousands of other students’ rights to borrower defense.

Meaghan Bauer and Stephen Del Rose, former students of EDMC-owned New England Institute of Art, were cheated by their school and left with a massive pile of debt.

Like the hundreds of thousands of students who were cheated by predatory for-profit colleges, they trusted in institutions like their school and their government. Their school not only let them down, but actively misled, cheated and harmed them. Then, the Department of Education doubled down on that harm. Under Betsy DeVos, the Department repeatedly delayed the implementation of a new Borrower Defense rule, which offered critical protections for students and would have allowed them to bring their case against their school to court on behalf of a class.

Meaghan and Stephen fought back. They filed a lawsuit against the Secretary of Education for illegally delaying a rule intended to protect borrowers’ rights. And this month, a federal judge agreed – ruling that the Department of Education broke the law when it delayed the rule.

When she learned of the ruling, Meaghan Bauer was elated. But despite her happiness about winning a major victory for students, Meaghan was still angry. She said:

“We are supposed to be able to trust our government and know that when they make a new policy it is with our best interests in mind. It is really sad that the government dragged this out for so long and acted so childishly that they needed a judge to tell them that what they are doing is illegal. I hope this ruling reminds the government of its obligation to care for its citizens who are the future of this country, instead of focusing on lining the pockets of for profit institutions. They should admit they were wrong and take the necessary actions to remedy their policies and reestablish some of the faith in our government that has been lost.”

Meaghan and Stephen are represented by the Project on Predatory Student Lending and Public Citizen. Click here to read more about their case.

Information About Art Institutes Closures and Bankruptcies

Posted July 4, updated July 13, 2018

The Project on Predatory Student Lending is monitoring Dream Center’s recently-announced closure of 30 of the Art Institutes, Argosy University, and South University campuses that it owns and operates. We will update this page with the most current information available to us about the closures, the school’s previous owner’s bankruptcy, and Dream Center’s plan for enrolled students.

THE BASICS

Until several years ago, EDMC was one of the biggest for-profit school companies, and owned chains including the Art Institutes, Argosy University, and South University. It targeted low-income students, promising a quality education and career opportunities, and charged them high tuitions for sub-standard programs. After years of declining profits and trouble maintaining accreditation, EDMC began to sell its schools.

In 2017, EDMC sold most of its schools for $60 million to Dream Center Education Holdings, LLC, a subsidiary of a LA-based religious organization, the Dream Center Foundation. Dream Center is in the process of converting the schools from for-profit to non-profit status. Dream Center’s application to the Department of Education to approve the non-profit conversion is pending. If the conversion is approved, Dream Center-operated schools will be subject to even less federal oversight than they are currently. You can read more about the sale and proposed conversion in an earlier post here.

On Friday, June 29, 2018, Education Management Corporation (EDMC) and 58 related companies filed for bankruptcy. The bankruptcy filings include some of the campuses that EDMC sold and also some that it didn’t sell.

The bankruptcy filings say that EDMC does not expect to have any funds to distribute to “unsecured creditors.” In other words, it won’t have any money left at the end of the bankruptcy. In fact, EDMC says that it has between $0 and $50,000 in assets, but owes between $500 million and $1 billion. Its list of people and companies it owes money to is 1,500 pages long, and includes political campaigns, copy companies, and financial institutions. It will file more financial information in the coming weeks.

One of EDMC’s lawyers for the bankruptcy is Jay Jaffe, from the firm Faegre Baker Daniels LLP. Mr. Jaffe and Faegre Baker Daniels are also representing the estate of ITT Educational Services, Inc. (ITT Tech), in its bankruptcy, which was filed in September 2016. You can read more about the ITT bankruptcy and the Project’s representation of former ITT students here.

At the same time that EDMC filed for bankruptcy, Dream Center announced in an internal memo that it will close 30 of the campuses that it bought from EDMC just last year, including several Art Institutes campusesDream Center has since confirmed these plans, and blames declining enrollment and an increased demand for online education for the closures.

Although we’re not yet sure what, if any, connection exists between EDMC’s filings and the Dream Center’s closures, it is clear that both corporations are acting to protect their own interest while further harming their former and current students.

Dream Center has provided limited information about the closures, but it has shared its plan for affected students. We have summarized its plan below. At the bottom of this post is a list of campuses that Dream Center has said it will close.

INFORMATION ABOUT SCHOOL CLOSURES

HOW THE CLOSURES WILL AFFECT STUDENTS WHO ARE CURRENTLY ENROLLED

Through leaked Dream Center memos and accounts and forms shared by current students, the Project on Predatory Student Lending has learned that Dream Center is giving students at closing campuses 5 options. Here is what we’ve learned, some information about loan cancellation, and important things to keep in mind until we learn more. A full list of affected schools is at the end of this post.

Options For Students at Closing Schools

Dream Center announced that students may choose from the following 5 options for how to continue their education:

-Complete your degree at your current campus by the end of 2018, when the campus will close

-Complete your degree via the Art Institutes Online

-Complete your degree at another Art Institutes campus

-Complete your degree at another Dream Center school, either Argosy University or South University

-Transfer to another, unspecified university outside the Dream Center network of schools

Dream Center is trying to convince students to accept these options by offering a 50% tuition reduction to students who remain at a Dream Center school and a $5,000 tuition grant to students who transfer to one the unspecified other schools.

We have not been able to determine what will happen to students who choose not to accept these options, but it is likely that they will be automatically withdrawn from their program.

Students should not let Dream Center trick them into accepting these offers before they have all the information they need to make an informed decision! Only accept an offer once you have all the information and if it’s the best option for you.

As part of these offers, Dream Center will make students sign acknowledge forms and waivers that will relieve it of any responsibility it owes to students and may prevent students from receiving relief from their federal loans in the future.

Students should not sign anything until they have read it carefully, had all of their questions answered, and decided that what the best decision is for them!

Dream Center is Trying to Deprive Students of Their Right to Loan Cancellation

The federal government has a program called the Closed School Discharge program that will cancel federal student loans when students’ schools close. It is only available to students who are enrolled when the school closes or who had withdrawn within 120 days of the school closure. Students who accept an offer to continue their education somewhere else when their school closes do not qualify for Closed School Discharges.

In a public disclosure, the Higher Learning Commission, an accrediting agency that oversees two Dream Center campuses in Illinois and Colorado, recognizes that these schools are “at risk of closing” and urges students to be aware of Closed School Discharges. Dream Center does not want its students to get Closed School Discharges! That’s because they will have to pay back the government for each loan that is cancelled from its schools.

Dream Center timed its closings so that anyone who withdraws will do so more than 120 from the closing, and is using tuition discounts to convince students to stay enrolled. These are both ways to prevent students from qualifying for a Closed School Discharge. This is not right!

Important Information for Students

There’s still a lot that we don’t know about Dream Center’s plan to close its school, and how that will affect students’ rights. While we wait to learn more, it is important for affected students to ask questions, share information, and protect themselves. Here are a few specific things you can do:

-Ask your school for to be placed on a formal leave of absence. Dream Center schools may not agree to give leaves of absence, but if they do it may help buy some time and maintain students’ eligibility for Closed School Discharges

-Do not sign anything without reading it completely, getting all of your questions answered, and understanding how it affects your right to a Closed School Discharge or to enforce your rights against your school. Dream Center might try to have you waive your rights. Do not do that without understanding the full impact of that decision, which will vary student by student.

-Share your experience and information!! There are 1000s of students across the country that are affected by this. Join Facebook groups. If you receive information from your school, share it!

-Visit the Debt Collective website and learn how borrowers across the country are fighting back against bad schools and unfair and illegal debt.

-Continue to visit this blog for updates.

-Contact your U.S. representative or senator and let them know what’s happening! Demand that they pressure the Department of Education to declare that all students affected by these closures are eligible for Closed School Discharges unless they WANT to accept Dream Center’s offers.

EDMC’s Bankruptcy May Limit Students’ Ability To Recover From Their Schools

For former students of EDMC-operated schools, EDMC’s bankruptcy may limit their ability to seek recovery directly from their school, even in arbitration. Former students may wish to file claims in one or more of the bankruptcy cases; more information will follow in the coming days.

Please visit the Federal Student Aid website, the Debt Collective, or contact the Project on Predatory Student Lending (that’s us!) to learn more.

The Project on Predatory Student Lending is fighting for and with students who have been cheated by the predatory federally-funded colleges. We are monitoring the EDMC filings and Dream Center closures and will provide updates for affected students as soon as possible.

List of Affected Schools

ART INSTITUTES

CAMPUSES SOLD TO THE DREAM CENTER

The Dream Center will cease enrollment at the following 18 Art Institutes campuses:

Arizona: Phoenix
California: Inland Empire/San Bernardino, Orange County/Santa Ana, Sacramento, San Francisco
Colorado: Denver
Florida: Fort Lauderdale
Illinois: Chicago, Schaumburg
Indiana: Indianapolis
Michigan: Detroit
North Carolina: Charlotte, Raleigh-Durham
Oregon: Portland
Pennsylvania: Philadelphia
South Carolina: Charleston
Tennessee: Nashville
Virginia: Arlington

The Dream Center will continue to operate the following 12 Art Institutes campuses:

California: Hollywood, San Diego
Florida: Tampa
Georgia: Atlanta
Nevada: Las Vegas
Pennsylvania: Pittsburgh
Texas: Austin, Dallas, Houston, San Antonio
Virginia: Virginia Beach
Washington: Seattle

All other Art Institutes were not sold to Dream Center and have closed.

Argosy

THE DREAM CENTER WILL CEASE ENROLLMENT AT THE FOLLOWING 10 ARGOSY CAMPUSES:

California: Inland Empire, San Diego, San Francisco
Colorado: Denver
Florida: Sarasota
Illinois: Schaumberg
Tennessee: Nashville
Texas: Dallas
Utah: Salt Lake City
Washington: Seattle

South

THE DREAM CENTER WILL CEASE ENROLLMENT AT THE FOLLOWING 3 SOUTH CAMPUSES:

Michigan: Novi
North Carolina: High Point
Ohio: Cleveland

Project on Predatory Student Lending Statement on Proposed Sale of EDMC to Dream Center Foundation

Last Friday, for-profit college giant Education Management Corporation (EDMC) announced the sale of many of its campuses to the Dream Center Foundation. The acquisition would convert three of the corporation’s chains—the Art Institutes, Argosy University, and South University—into nonprofits. EDMC will retain ownership of the Brown Mackie chain, which is shutting down most of its campuses, and the 19 Art Institute campuses the corporation is in the process of shutting down.

EDMC’s conversion to nonprofit status raises critical questions, including how the corporation intends to ensure positive student outcomes once it is no longer subject to gainful employment regulations. EDMC has more than 130 programs that the federal government has found to burden graduates with unmanageable student loan debt—programs that will be subject to even less federal oversight once they have been sold to a nonprofit. EDMC’s compliance with federal requirements attached to the receipt of federal Title IV funds will be even more critical once the corporation is no longer subject to the “90-10 rule,” which prevents for-profit colleges from receiving more than 90 percent of their revenues from such funds.

Like the last-ditch sale of many Corinthian campuses as that company failed, this sale leaves failing schools with EDMC, while selling off assets that may still have value to a new entity that may disclaim liability for the acts of its predecessors. This type of transaction leaves former students struggling with unmanageable debt even more completely without recourse.

Less than a year ago, EDMC tried to sell the New England Institute of Art, an Art Institutes campus in Brookline, Massachusetts, to a university based in India. The deal was scuttled after the corporations failed to obtain state approval. As EDMC’s equity holders continue to try to divest themselves of these assets, regulators should demand assurances that whoever owns the schools will operate them in the interests of students.

***
The Project on Predatory Student Lending represents a group of former students who attended the EDMC-owned New England Institute of Art. In September, these former students demanded that the companies remedy the harms they had caused to students and their families. The Project and Public Justice are currently challenging the federal government’s refusal to provide documents shedding light on EDMC’s recruiting practices.

Project on Predatory Student Lending Sues Federal Government For Withholding For-Profit College Corporation’s Recruitment Records

On February 14, the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School filed a Freedom of Information Act (FOIA) lawsuit, challenging the government’s refusal to provide documents shedding light on for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

Months ago, the Project filed a FOIA request with the Department of Justice (DOJ), seeking access to these documents. DOJ claimed that it couldn’t release the documents (in part) because it said there was a court order preventing it from doing so. The Project disagreed. So, together with Public Justice, we asked the court that issued the order to clarify that the order does not, in fact, prevent DOJ from releasing the documents.

Soon after we asked the court for clarification, however, DOJ changed its tune entirely. It now claims that the public has no right to access these documents, even though they were produced to the government by a corporation the government alleged defrauded it of billions of dollars, and would enable the public to evaluate the government’s decision to settle its claims for less than one percent of what it had originally said they were worth.

The lawsuit challenges the government’s assertion that the public has no right to these important documents.

Two Federal Lawsuits, Still No Documents

Federal regulations allow student loan borrowers to seek cancellation of their federal student loans by showing that their school violated state law. Former students of the Art Institutes and other EDMC-owned chains thus want the documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to support their claims of misconduct.

The Attorney General of Minnesota—one of the states that participated in the case—expressed support for the Project’s efforts, stating that the information requested by the Project “could aid students in their efforts to obtain loan forgiveness from the United States Department of Education, which would unburden them from thousands of dollars of debt.”

The Project has made a significant effort to obtain these documents—filing a freedom of information request, litigating the government’s denial of that request, and moving to intervene to challenge the government and EDMC’s efforts to keep the documents secret—because the documents are critical to the Project’s advocacy on behalf of low-income student loan borrowers. The documents will help the Project seek relief for former students of EDMC-owned schools; inform the public about the practices of for-profit education companies and the government’s oversight of those companies; and advocate for policies that will protect low-income student loan borrowers.

Background: Government Lawsuit Against EDMC

EDMC, a corporation that has been closely associated with Goldman Sachs for years, runs four large chains of for-profit schools, including the beleaguered Art Institutes. In 2011, the federal government, along with several states, sued EDMC, alleging that it violated state and federal law and then lied about it to get government funding. The government claimed that, to maximize enrollments, EDMC illegally paid its “admissions employees” based on the number of students they could enroll; “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up; taught its recruiters to exploit prospective students’ vulnerabilities; and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, less than one percent of the more than $11 billion in taxpayer-funded federal student grants and loans that the government alleged EDMC received between July 2003 and the suit’s filing. The settlement did not relieve students of any of the federal student loan debt they took on to attend EDMC-owned schools.

Documents Related to This Case

  • Freedom of Information Act Requests, Appeal, and Complaint:
  • Intervention (Dec. 2016):

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.

Challenge to Secrecy of Recruitment Records from For-Profit Education Company

The Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Public Justice asked a federal judge on Friday, December 16, for access to documents that are likely to reveal for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

A few years ago, the federal government, along with several states, sued EDMC, whose four large chains of for-profit schools include the beleaguered Art Institutes, alleging that it violated state and federal law and then lied about it to get government funding.  The government claimed that EDMC illegally paid its recruiters based on the number of students they could enroll, a practice prohibited by federal law.  EDMC, the government alleged, “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up. To maximize enrollments, the lawsuit alleged, EDMC taught its recruiters to exploit prospective students’ vulnerabilities, and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, much less than the $1.47 billion the company received in taxpayer-funded federal student grants and loans in the 2014-2015 year alone.  But as part of discovery in the suit, EDMC produced a lot of documents that we believe will shed light on their recruitment practices. “The documents from this lawsuit are likely to strengthen claims for relief of hundreds, if not thousands, of former EDMC students,” said Amanda Savage, one of the attorneys representing the debtors.

Former students of the Art Institutes and other EDMC-owned chains want these documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have so far been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to corroborate their claims of misconduct.

“While taxpayers spent hundreds of millions of dollars funding what the Department of Justice has called EDMC’s ‘recruitment mill,’ the borrowers who attended these schools have yet to obtain federal debt relief,” said Public Justice attorney Jennifer Bennett.

Before filing this lawsuit, the Project tried to get these documents showing EDMC’s predatory recruitment practices through federal and state freedom of information requests, but its request was denied in part because of a protective order in the case. The Project asked a federal judge to rule that the protective order does not shield the documents.

Documents Related to This Case

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.