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Report: Department of Education Took ‘Unprecedented Actions’ in Sale of For-Profit Chain

July 1, 2021

A report by the Department of Education's Office of Inspector General found that the department took several unprecedented actions during and after the 2017 sale of Education Management Corporation's chain of for-profit institutions to the Dream Center Foundation.

Among the actions include the department reducing the letter of credit amount that Dream Center was required to post by about $86 million, despite a preacquisition report by Federal Student Aid identifying significant financial risks associated with Dream Center's purchase of the 13 institutions. It also approved temporary nonprofit status for two of the institutions retroactive to the date of the ownership change, even though it hadn't made a decision on whether the institutions satisfied all aspects of the regulatory definition of a nonprofit institution. The report found the department's oversight was not rigorous enough to ensure Dream Center complied with requirements for drawing down and disbursing Title IV funds.

The Office of Inspector General recommends FSA create and retain records of decisions made that deviate from regulations or FSA policy and that it design and implement policies and procedures for reviewing and approving applications for institutions' conversion from for-profit to nonprofit status.

The department must develop a final corrective plan within 30 days based on the findings and recommendations of the report.

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