The Department of Education kicked a major for-profit college chain out of the federal financial aid program, likely putting it at risk of shutting down.
The decision to block Argosy University, which has campuses in Arizona, California, Virginia and elsewhere, from accessing federal financial aid comes after months of alleged financial mismanagement by the school, including failing to pay more than $16 million in stipends — the financial aid that college students rely on to pay non-tuition expenses — according to a letter sent Wednesday to Argosy by Department of Education officials.
The decision to cut Argosy off from the federal financial aid program is the latest development in a years-long battle over Argosy’s ownership and future as its thousands of students wait in limbo. Colleges, for-profit schools in particular, rely heavily on federal financial aid funds to function. Kicking the school out of the program could effectively be its death knell.
“It certainly seems to me like we are headed toward another round of local news stories about students showing up to closed doors,” said Ben Miller, the senior director of postsecondary education at the Center for American Progress, a left-leaning think tank.
Argosy has until March 11 to dispute the Department’s findings. In the letter sent by Michael J. Frola, the director of the Department’s multi-regional and foreign schools participation division, the agency accused Argosy’s parent organization of using more than $12 million in federal financial aid funds to pay its staff, vendors and others before distributing it to students.
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The controversy over Argosy dates back to at least March 2017 when the school was one of three for-profit chains sold by its parent company, Education Management Corporation, to Dream Center Educational Holdings, a nonprofit.
At the time, the sale of the three chains — Argosy, South University and the Arts Institutes — was controversial among consumer advocates, who often view a transfer of a for-profit college to a nonprofit organization as a way to escape regulatory scrutiny. They were also skeptical of the nonprofit’s executive team, which included the former chief executive officer of another controversial for-profit institution.
Dream Center ultimately faced scrutiny over claims it misled students about the accreditation — a crucial seal of approval for a college to function — of some of its campuses, among other issues.
Ultimately, faced with challenges running the three chains and pressure from the Department of Education, Dream Center says, the organization essentially transferred ownership of South University and Arts Institutes to a different company, known as Studio, and its related nonprofit. Late last year, Dream Center entered a receivership, a form of bankruptcy. Now, Studio and the receiver overseeing Dream Center’s holdings are in a legal battle over the missing financial aid funds.
The battle, which has largely played out in court rooms and behind closed doors, has been “a disaster for students as well as for faculty and staff,” said David Halperin, an attorney and for-profit college critic who has reported extensively on the Dream Center controversy.
As part of the sale, Dream Center planned to turn the three chains into nonprofits. The Department’s Wednesday letter also denied Argosy’s shift to nonprofit status. “We are disappointed at the decision by the Department of Education today to deny Argosy University’s request for change of ownership,” said Mark Dottore, the court-appointed receiver for Dream Center. “We are working to determine the best path forward for students at this time.”
But for Miller, the chain’s turmoil is a sign that “this is a deal that never should have been made,” Miller said, referring to the sale of the three chains to the Dream Center. “Letting it linger has only exposed more students to harm.”
If Argosy ultimately closes, its students will be left with some unpalatable choices. If they attended the school within 120 days of its closure, they can have their federal student loans wiped away, under what’s known as a closed-school discharge, as long as they don’t try to finish their course of study elsewhere. They could also try transfer their Argosy credits to a new school and continue with their degree program — but would not be eligible for the closed-school discharge. Students who attended for-profit colleges often face challenges getting credit for their courses at other schools.
Miller said he’d like to see the Department extend the window students who are eligible for a closed-school discharge back to at least October 2017, when the controversial sale to Dream Center was approved.
Argosy is the latest for-profit college chain to collapse over the past several years in the face of regulatory scrutiny and financial pressure. Corinthian Colleges and ITT Technical Institutes collapsed in 2015 and 2016 respectively over claims they misled students about graduation and job placement rates. Education Corporation of America, the parent company of schools like Virginia College and Brightwood Career Institute, shut down late last year.
All of these cases were preceded by the Department of Education tightening schools’ access to government loans and grants.
The battle over Argosy’s future and the havoc it’s wreaked on its students suggests to Miller that the Department of Education, which is focused on educational quality, should more closely scrutinize business dealings as part of its oversight of these schools.
“A business-oriented look at the initial deal would have turned up enough red flags,” he said.
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