On Eve of Court Deadline, Department of Education to Extend Eligibility for Closed School Loan Relief to More Illinois and Colorado Students
Department Agrees to Extend Window for Closed School Discharges in Response to Student Defense Litigation over DeVos’s Illegal Support of Failing For-Profit Schools
WASHINGTON, DC – Student Defense announced another victory today in its ongoing class action lawsuit, Infusino v. DeVos, demanding the Department of Education provide relief for students defrauded by the Dream Center-owned Illinois Institute of Art and the Art Institute of Colorado. Among other things, the Infusino lawsuit seeks an extension of the closed school discharge eligibility window to January 20, 2018, the date that these schools lost accreditation. On the eve of a court deadline requiring the Department to a respond to the lawsuit, the Department agreed to the extension. As a result, students who attended either school on or after January 20, 2018 are now eligible for a full discharge and refund of all federal loans they took out to attend the schools. This follows an earlier agreement by the Department to cancel approximately $11 million in debt incurred by students during the period that the schools had been illegally propped up with federal funds.
“This is a real victory for students who were kept in the dark when these schools lost accreditation,” said Student Defense Litigation Director Eric Rothschild. “Expanding the eligibility window back to January means justice for more students. The Illinois Institute of Art and the Art Institute of Colorado were lying to students from the moment they lost accreditation in January 2018, and students deserve relief that reflects the full extent of that deception.”
Student Defense filed the class-action lawsuit against Secretary DeVos in October 2019, 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 attempted to hide this unlawful conduct by retroactively converting the schools to non-profit status to create the fiction that they were eligible to receive federal student loan funds. The Department lacked any legal basis to make this conversion, which it kept hidden from students and Congressional investigators. Both schools subsequently closed, leaving students saddled with thousands of dollars in debt and worthless credits.
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.
Effective January 20, 2018, 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 and disclose its mistake 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