For-Profit College Chain Sues to Keep U.S. Aid

In lawsuit filed against Betsy DeVos, Education Corporation of America argues that it needs major financial restructuring but that campuses will have to close without federal student aid.

October 19, 2018
 

The problems at for-profit college operator Education Corporation of America have piled up in recent years.

Its enrollment has plummeted. It has stopped making on-time payments on its debt. And it’s fighting eviction from multiple locations as creditors pursue judgments against the company.

This week, ECA told a federal judge that it could not complete a teach-out -- a process by which students finish their degrees or transfer credits elsewhere -- at two dozen campuses slated for closure unless an unusual restructuring plan is approved. In a lawsuit naming Education Secretary Betsy DeVos and her department as defendants, the company hinted that the government could face numerous loan-forgiveness claims from students attending those campuses without the plan in place.

Higher ed institutions that enter the bankruptcy are barred from receiving Title IV federal student aid, including grants and loans. The company brought the lawsuit to assure that it can keep access to the federal aid while a receivership process goes through. Its financial situation is so dire, it argued, that it can’t cover salary or other costs without those funds.

“It seems like ECA is at death’s door,” said Matthew Bruckner, a professor who studies higher ed and bankruptcy at Howard University Law School. "They're basically saying 'without this receivership we have no money; we can't do a teach-out.'" 

The company operates multiple for-profit chains with campuses across the country, including Virginia College and Brightwood College. In the lawsuit, filed in a federal district court in Alabama, ECA says it enrolls about 20,000 students -- although it’s unclear from the complaint if that number refers to just Virginia College or all ECA institutions.

It announced plans last month to phase out 26 campuses, about a third of its total footprint, by December 2019. The company said it took that step because of declining enrollment in the affected markets.

When a college makes plans to close a campus, it’s required to formulate what’s known as a teach-out process that will allow students still enrolled to either complete their degrees or transfer their credits to another institution. The lawsuit argues that without the restructuring plan in place -- and continued access to Title IV -- ECA won’t be able to fulfill those obligations.

“Without obtaining the relief requested herein, the unrestrained actions by ECA’s creditors will almost certainly result in a disorderly and chaotic process that will irreparably harm students’ interests and minimize recovery for all creditors,” according to the complaint.

If the restructuring plan is approved, ECA said in the lawsuit, a creditor, Monroe Lenders, has offered to purchase its remaining 46 campuses and its management platform.

ECA didn’t respond to a request to comment further on the lawsuit.

An Education Department spokeswoman said the agency could not comment on active litigation.

A sudden closure of those campuses would be unwelcome news for students. It would also create serious costs for the federal government from closed-school discharge claims -- a process where borrowers can seek loan forgiveness when their college suddenly closes while their degree is in progress.

But many ECA programs also have a questionable track record of academic outcomes that won’t be helped by the teach-out process, said Antoinette Flores, associate director for postsecondary education at the Center for American Progress.

“On the one hand, it’s terrible that the campuses would close,” she said. “On the other hand, it would mean continuing to allow Title IV money to flow to institutions with questionable academic quality. I don’t think there’s a win here for students.”

The Accrediting Council for Continuing Education and Training in May rejected an application from Virginia College to get approval from the accreditor, citing in part low graduation and job-placement rates. The chain had sought accreditation through ACCET in part because the status of its own accreditor, the Accrediting Council for Independent Colleges and Schools, was in doubt.

The Obama administration sought to shut down ACICS as an accreditor because of oversight failures. But after the organization got a second chance thanks to a court ruling, a senior Education Department official recommended last month that its federal recognition be extended for 12 months.

ACICS did not respond to a request for comment on the ECA lawsuit. The for-profit chains operated by ECA make up about half of the remaining colleges accredited through the organization.

Read more by

Be the first to know.
Get our free daily newsletter.

 

 
+ -

Expand commentsHide comments  —   Join the conversation!

Today’s News from Inside Higher Ed

Inside Higher Ed’s Quick Takes

What Others Are Reading

  • Viewed
  • Past:
  • Day
  • Week
  • Month
  • Year
Back to Top