Art Institutes and Other Former For-Profit Institutions Closing

Converting for-profit colleges to nonprofits may not be the solution to saving failing campuses.

December 10, 2018
 

About 30 colleges are shutting their doors at the end of this month, nearly a year after becoming the latest group of for-profit institutions to convert to nonprofit status.

The colleges, most of which are part of the once renowned Art Institutes brand, are owned by the Pennsylvania-based nonprofit Dream Center Education Holdings, or DCEH. They were formerly owned by Education Management Corporation. Despite having a recognizable brand, EDMC struggled with decreases in enrollment and revenue and increased scrutiny by state and federal investigations before selling the properties last year to the Dream Center Foundation, a Christian missionary organization.

The Dream Center purchased Argosy University, the Art Institutes, South University and Western State College of Law, which together had more than 100 campuses, from EDMC and converted the large for-profit institutions into nonprofit entities. It was reported in July that DCEH would stop enrolling students at 30 campuses and shut down those locations. The campuses have about 50,000 students enrolled in total.

Officials at DCEH did not respond to multiple calls and emails seeking more information about the closures of the colleges.

Trace Urdan, a managing director at the consulting firm Tyton Partners who follows and analyzes the for-profit sector, said several factors led to the closures.

“The challenge of turning the business around has proven to be more difficult than anticipated and that simply declaring it nonprofit has been insufficient to shake the negative associations with the brand,” he said in an email.

Urdan said the dwindling appeal and high costs of programs at the Art Institutes -- the programs include culinary arts, media production, fashion, animation and interior design -- also worked against the universities. These programs require students to buy expensive course materials and equipment, which are essentially investments with low returns since most graduates end up in jobs with low starting salaries.

“In the context of a full-employment economy, attracting students to what are effectively vocational programs remains very challenging,” Urdan said. “They have to be persuaded that spending or borrowing money will boost their earning power enough to justify the expense. And because [the Art Institutes] is primarily a four-year degree institution, the cost and hurdle involved are that much greater.”

Tuition at the Art Institute of Philadelphia, for example, ranged from about $48,000 for an associate degree in graphic design to about $93,000 for a bachelor's degree in graphic design. The Philadelphia campus is among the locations that are closing. Tuition at Argosy University's San Francisco and Nashville, Tenn., campuses, which are also closing, ranged from $445 per credit hour to more than $1,000 per credit hour, according to its website. The Argosy campuses offer undergraduate and graduate degree programs.

But it isn't just the cost of the programs that may be turning off potential students. The wages for the careers that the degrees lead to aren't high enough for these programs to be a good value, said Spiros Protopsaltis, an associate professor of education policy at George Mason University and former deputy assistant secretary for higher education and student financial aid at the U.S. Department of Education under the Obama administration.

Employers don't seem to value these degrees, especially from a former for-profit, as much as they do when students are coming from a traditional public university or a nonprofit institution that hasn't undergone a conversion, he said.

"People see through some of these things for what they are, and at the end of the day, consumers realize that just because a school converted to a nonprofit, it doesn't mean that it necessarily changed its education model," he said. "If outcomes don't improve and quality doesn't go up and the value proposition isn't there, changing tax status doesn't change the underlying problems with the business model."

Prior to the Education Department's decision in August to drop the gainful-employment rule, which required for-profit institutions to prove they are preparing graduates for remunerative employment, and before the nonprofit conversion, career education programs like some of those offered at the Art Institutes failed to meet the guidelines. For example, the Art Institute of Pittsburgh charges more than $44,800 for an associate degree in graphic design, but only 12 percent of students graduated on time. And those graduates typically earned less than $22,000 a year and had more than $40,000 in federal student loan debt, according to the Institute for College Access & Success.

"Changing the tax status without changing the culture or changing the product is not going to lead to any different outcomes," Protopsaltis said.

When the Dream Center took over the struggling EDMC campuses, critics questioned whether the organization was equipped with the necessary knowledge and skills to run one of the country’s largest for-profits. At the time of the sale, EDMC records indicated an enrollment of 65,000 students.

Critics also point to another example of a failed attempt to convert a for-profit institution into a nonprofit by the ECMC Group, a student loan guarantee agency. ECMC created the Zenith Education Group to turn some of the former for-profit Corinthian Colleges into nonprofit entities.

ECMC purchased 56 former Everest and WyoTech campuses in 2015 and together with Zenith spent more than $500 million to keep the former Corinthian Colleges operating. The company closed 21 of the campuses in 2017 but left three open.

Protopsaltis said these types of conversions need to be scrutinized more carefully.

Dream Center supporters dispute the assessment that the company doesn't understand the complexity of turning around former for-profit institutions. They point to Brent Richardson, who was previously the executive chairman of Grand Canyon University, a private, nonprofit Christian university in Phoenix. Richardson spent years investing in and helping to build GCU when it was a struggling for-profit entity.

Michael Clifford, a former board member of the Dream Center who has invested in for-profit colleges and describes himself as a “friend of the nonprofit,” said the campus closings are a sign that the Dream Center’s administrative teams are moving the company in the right direction and in the best interests of the students who continue to attend the institutions.

“They’ve done more positive things in six or seven months than anyone in this business,” he said while declining to give specific examples on the record. “I’ve never seen a management team turn around a nonprofit school center as this group has done.”

Clifford's appraisal of Dream Center's financial outlook did not include other challenges the organization is currently facing.

The Art Institute of Seattle, which was not on the list of campuses closing this year, laid off 10 of 13 full-time instructors this fall. The institute also employs 75 part-time instructors, none of whom were laid off.

Meanwhile, the Middle States Commission on Higher Education, which is the accreditor for the Art Institute of Pittsburgh, recently ruled that Dream Center had to provide more evidence that it adheres to commission standards by March 1 in order for the institution to be accredited.

Middle States, along with other regional accreditors for the DCEH campuses such as the Higher Learning Commission, has also approved teach-out agreements for the 30 campuses slated to close. The Higher Learning Commission, for example, approved a plan that would allow Illinois Institute of Art and Art Institute of Colorado students to transfer their earned credits to Columbia College Chicago or Rocky Mountain College of Art and Design, in Denver.

Students who attended the Illinois campuses last week launched a class action lawsuit with the National Student Legal Defense Network. They accused the institution of hiding the fact that HLC revoked accreditation in January while continuing to encourage students to pay for courses and to graduate with unaccredited degrees.

Clifford is optimistic that regulatory changes made by Education Secretary Betsy DeVos will help put DCEH campuses on stronger financial footing. He points to the administration's accreditation overhaul and its concerns that accreditors may not be in the best position to properly scrutinize the financial health of institutions and nonprofit conversions. Clifford said he supports the idea of shifting oversight from the accreditors to the states.

"No one wants another Corinthian or ITT [Technical Institutes]," Clifford said, referring to for-profit chains that collapsed in recent years after being subjected to increased federal oversight.

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