Student Defense Clients to Receive Debt Forgiveness for Attending Failed Dream Center Schools

More than 1,500 Students to Receive Relief in Reversal by the U.S. Department of Education 

WASHINGTON, DC — Student Defense announced today that over 1,500 students represented in the class-action lawsuit, Infusino v. DeVos, will receive millions of dollars in debt forgiveness from the U.S. Department of Education. The Department will cancel the debt incurred by students attending the Illinois Institute of Art and the Art Institute of Colorado during a time period when the Department of Education illegally propped up the schools with millions of dollars in federal funds. Student Defense will continue its litigation to ensure that the Department of Education fulfills its commitments to all students affected by this wrongdoing.

“At long last, the Department is taking action to cancel the illegal debt that it issued for students who were ripped off by the Dream Center,” said Student Defense Litigation Director Eric Rothschild. “While this is an important first step, we will continue our litigation to ensure that our clients receive the full relief that they are entitled to, based on the Department’s decision to illegally fund these schools with millions of dollars of taxpayer money.”

Student Defense filed the class-action lawsuit against Secretary DeVos in October, after obtaining documents establishing that the Department illegally allowed an unaccredited institution to receive Title IV student aid funding. The documents further established that the Department then attempted to hide this unlawful conduct by retroactively altering the schools’ status as for-profit entities, contradicting its prior determination that the schools had not satisfied the conditions necessary to be considered non-profits. The Department lacked any 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.

Background

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 non-profit 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 non-profit 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. 

The complaint filed against the Department of Education is available here: https://www.defendstudents.org/news/body/2019.10.22-Infusino-v-DeVos-Complaint.pdf  

The Department of Education’s May 3, 2018 letters are available here: https://www.defendstudents.org/news/body/12018.05.03-ED-Letters-to-Dream-Center-Schools.pdf