Lawsuit Accuses DeVos, Education Department of Illegally Propping Up Failing, Unaccredited For-Profit Colleges
UPDATE: On February 6, 2020, the Department of Education confirmed it would expand the eligibility window for closed school discharges, for students who attended the Art Institute of Colorado and the Illinois Institute of Art. Students who attended either school on or after January 20, 2018 are eligible for a full discharge of their loans and refunds of any payments already made.
UPDATE: On November 8, 2019, the Department of Education announced it would cancel approximately $11 million in debt incurred by Student Defense clients and members of the class action lawsuit. The litigation remains ongoing.
Former students of the Illinois Institute of Art and the Art Institute of Colorado sued Education Secretary Betsy DeVos and the US Department of Education, for illegally propping up two for-profit colleges by continuing to provide federal funds to the schools after they lost their accreditation and eligibility to participate in the Title IV loan program. The students, represented by the nonprofit legal organization Student Defense, allege that the Department’s illegal actions caused the students to incur debt to pay tuition for unaccredited credits and degrees.
The lawsuit cites May 2018 letters from the Department to the schools, explicitly acknowledging the schools had been receiving federal funds despite being legally ineligible under the Higher Education Act. That correspondence reveals the Department attempted to retroactively alter the schools’ status as a for-profit entity, contradicting its prior determination that the school had not satisfied the conditions necessary to be considered a non-profit. The Department lacked the legal basis to make this determination, and then chose to hide those unlawful actions from students and Congressional investigators.
Both schools subsequently closed, leaving students saddled with thousands of dollars in debt and worthless credits. The lawsuit seeks to void all the federal loans made to students at both schools between January 20, 2018 and the school’s closures later that year.
“This Administration is clearly willing to break the rules to benefit for-profit schools at students’ expense,” said Student Defense Litigation Director Eric Rothschild. “The Department of Education kept students and Congress in the dark while it tried to keep this predatory chain of schools afloat, but its unlawful actions are spelled out in private correspondence it hoped would stay hidden. Students became collateral damage in the rush to protect corporate interests, and they should not be forced to pay for the Department’s misconduct.”
Sale and Unsuccessful Conversion
The Illinois Institute of Art (IIA) and the Art Institute of Colorado (AIC) were for-profit colleges previously owned by the Education Management Corporation (EDMC). After EDMC agreed to pay nearly $200 million in fines and loan forgiveness to settle an investigation into its illegal and deceptive recruiting practices, the company sold off many of its properties. This included the 2017 sale of IIA and AIC to the Dream Center Foundation, a California-based nonprofit with no history of operating educational institutions. The Dream Center Foundation asked the Department of Education to approve the transaction, and to convert the purchased schools from for-profit to nonprofit status; the change in status would exempt the schools from a variety of student protection regulations. The Department did not immediately approve the conversion, and the schools continued operating under their original for-profit status.
In November 2017, IIA and AIC’s accreditor, the Higher Learning Commission, revoked the schools’ accreditation status, formally notifying each school and the Department that the schools had been placed instead into “pre-accreditation status.” Importantly, under the Higher Education Act which governs the allocation of federal student aid funds, for-profit schools in pre-accreditation status are not eligible to participate in the Title IV student aid programs.
Education Department’s Cover-Up
On May 3, 2018 the Department sent letters to both IIA and AIC, saying that because of their pre-accredited status the schools were “no longer qualifie[d]” to receive federal Title IV funds. Rather than admit its mistake and disclose it to students, however, the letters stated that the Department would retroactively approve the schools’ applications for non-profit status in order to restore their Title IV eligibility, despite a complete lack of any legal basis for that action. As a result, students at both schools remained unaware that the schools had lost accreditation, and instead continued to take out loans to pay for tuition.
Press Coverage
Washington Post: Feds to give former Art Institute students a new opportunity for loan forgiveness
New York Times: U.S. Education Dept. Cancels Loans for 1,500 Defrauded Students