For decades the Art Institute of Seattle was a fixture of the city’s picturesque downtown waterfront. But in recent months, things got ugly.
In the fall, the institute’s parent organization, Dream Center Education Holdings, laid off almost all of the college’s full-time professors — a drastic cut accompanied by staff reductions at other Art Institute campuses around the country. In January, students at the Seattle campus’s culinary-arts program lost their teaching kitchen after the college was kicked out of the building by its landlord.
During the past few weeks, the campus operated without its janitorial staff. Garbage piled up in the bathrooms.
Through it all, top officials at the Seattle campus continued to tell students that everything would be OK. It was a pattern repeated at Dream Center locations around the country, where students were reassured despite obvious and escalating problems.
On Friday, it all came crashing down. Dream Center campuses around the country closed. The Art Institute of Seattle was one of them. Also closing: locations of Argosy University, another chain operated by Dream Center, which specialized in graduate programs. A small number of Art Institute campuses have been sold and will remain open.
Many college chains have gone out of business in recent years, but Dream Center’s empire died in a particularly cruel way. And there were numerous red flags and irregularities that surrounded its demise. More details are likely to be revealed on Monday, when the Education Department and Dream Center’s court-appointed receiver are expected to appear before a federal judge.
Exactly how many campuses and students are affected by Friday’s closures is unclear. Dream Center’s colleges enroll about 26,000 students, according to a New York Times report. The collapse has displaced many of them. Not only do students feel they were misled about the risk of closure, but Argosy officials are accused of improperly keeping nearly $13 million in financial-aid money that was supposed to be distributed. Students counted on that money to pay for rent or groceries. In addition to losing their colleges, many also lost their financial footing.
“We have been defrauded out of these funds,” said a former Argosy student, Kendrick Harrison, a disabled Iraq war veteran with six children who never received his financial-aid stipend of several thousand dollars. Harrison faces the prospect of his car’s being repossessed and his family’s being evicted from its home. That would mean switching his children to new schools in the middle of the school year.
“It’s not my intent not to pay my landlord,” he said. “There was a system of robbery here.”
A day before the closures, David Schreiber, the campus director at the Art Institute of California’s Hollywood location, heard from the local police. Two students had been caught stealing a couple of industrial sewing machines from the college. An instructor at the college had texted students to say that it planned to sell the equipment for pennies on the dollar, Schreiber said.
Schreiber declined to press charges. “A little larceny courses through all our veins, especially at that age, and they feel cheated,” Schreiber said. “They just wanted their education.”
Schreiber was less forgiving of Dream Center executives. After some Art Institute campuses closed last year, officials allowed almost 200 students to transfer to the Hollywood location. Some moved across the country; they started at Hollywood in January.
The campus director, who had worked at the Art Institute for 19 years, said executives had to have known his campus was potentially doomed when they allowed the transfers. “They knew, they knew, they just didn’t care,” he said. “Or they didn’t see any graceful way out.”
A Controversial Acquisition
The meltdown comes on the heels of similar closures of large chains of for-profit colleges in 2015, when Corinthian Colleges closed campuses it was unable to sell, and in 2016, when ITT Educational Services shuttered its campuses.
Those shutdowns were prompted in part by enhanced scrutiny from the Obama-era Education Department, which took aggressive steps to monitor the for-profit sector. This time, the closures happened under the Trump administration’s watch. Again, the department and the education secretary, Betsy DeVos, have drawn blame. But this time critics are arguing that it was a lack of oversight from the agency that caused the Dream Center mess.
A little over a year ago, the department made the controversial decision to allow the Dream Center Foundation, a Christian nonprofit organization with no higher-education track record, to purchase three for-profit colleges from the Education Management Corporation, known as EDMC, which was then the nation’s second-largest for-profit college chain. Earlier, Dream Center had tried to buy ITT Tech, but was rebuffed by the Obama Education Department.
Along with the Art Institutes and Argosy, Dream Center also purchased the corporation’s South University, which it recently sold as its financial problems mounted.
The Dream Center purchase put an inexperienced operator in charge of colleges that were already severely troubled. Under previous ownership, the colleges had been accused of falsifying job-placement statistics and improperly paying recruiters on a commission basis. Those accusations led to $202 million in legal settlements with both the Department of Justice and a large group of state attorneys general in 2015.
The closures could ultimately cost taxpayers hundreds of millions of dollars, as students who attend a college that closes are eligible to have their student-loan debt forgiven. Dream Center’s court-appointed receiver, Mark Dottore, said in a written statement on Saturday that “a number of institutions in receivership under Dream Center Education Holdings have closed, and the campuses have discontinued operations.” (The statement did not specify how many.)
“We have worked day and night since these institutions entered into receivership to find the best path forward for students,” Dottore said.
Last-Ditch Tactics
Until the very end, the fate of individual campuses was uncertain. On Thursday students at the Art Institute’s flagship campus, in Pittsburgh, received an email from the provost, Jennifer Cooper, telling them there would be “no school closure” because the campus was “diligently working with a very interested buyer.”
On Friday students in Pittsburgh were told their campus would close.
“With my apologies, the acquisition of your campus fell through,” Dottore wrote.
The press secretary for the Education Department, Elizabeth Hill, said in a written statement on Friday that “while the court has not yet granted the receiver’s motion to close the campuses, we recognize that an imminent closure is a distinct possibility.” Hill said the department was “working quickly to provide students the information and resources they need either to have their loans discharged or to find another institution where they can finish their program should the school close.”
Records show that in August the department granted a request from Dream Center to spend $10 million from a line of credit that had been provided to the federal government by the previous owner, EDMC. Such lines of credit are a common requirement for colleges that are in financial trouble. They are intended to protect taxpayers from footing the entire bill for loan forgiveness and other costs that arise when a college closes.
The department justified releasing the funds by stating that the money from the drawdown would facilitate an orderly shutdown of campuses. It would help make sure that students had an opportunity to finish their program at another college — an option known as a “teach-out.”
Diane Auer Jones, principal deputy under secretary at the Education Department, signed off on the $10-million spending plan. (Auer Jones was previously an executive at Career Education, a for-profit college company.) The document approving the plan, which appeared in court records, allowed for some spending items that didn’t directly help students, such as campus lease payments, certain employee salaries, and “retention bonuses.” The department did not respond to a question from The Chronicle about those spending categories.
By December, Dream Center’s financial condition had worsened to the point that it needed help negotiating with its creditors. Bankruptcy wasn’t a good option: Colleges that declare themselves bankrupt lose eligibility for Pell Grants and federal student loans.
So Dream Center pursued an alternative known as receivership, which allows a college to continue getting federal financial-aid money as it tries to sell off its most valuable parts to a new buyer. Court records show that Dream Center was so motivated to get a receiver appointed that it took the unusual step of asking its creditors to sue it in court — an action that can then trigger a judge to appoint a receiver.
Dream Center even wrote up a draft lawsuit for at least one landlord, and then told the landlord to simply supply the missing information for the mostly complete document.
“As you can see there are several fill-in-the-blank places within the draft complaint,” wrote a lawyer, Robert Kracht, in a December email sent on behalf of South University.
That landlord didn’t bite. But another vendor owed money by Dream Center did decide to file suit.
Once that occurred, Dream Center quickly petitioned the court to appoint its preferred choice, Mark Dottore, as receiver. The judge agreed to do so.
‘Doing More Harm Than Good’
Before becoming receiver, Dottore worked for several months as a consultant for Dream Center. Critics have questioned whether he is a neutral steward of its assets.
Last Monday, Dottore claimed in a court filing that Argosy University and its parent company had provided false statements to the Department of Education to obtain access to student-aid funds, which were then spent on payroll and other expenses. Dottore said he had not known that Dream Center was doing so.
The National Student Legal Defense Network has asked a federal judge to remove Dottore as receiver, arguing that Dream Center obtained a receiver on the grounds that it would “protect” students, and that this has failed to happen. In court filings, the student group says that when the issue of missing student-stipend money surfaced, Dottore “deflected responsibility for the whereabouts of the money, and only belatedly acquiesced to conducting a forensic investigation into its disappearance.”
The Education Department, too, has faulted Dottore’s leadership, in a February letter that revoked Argosy’s eligibility for Pell Grants and student loans — a decision that accelerated Dream Center’s death spiral. According to the letter, the receiver fired Argosy’s chancellor, along with “nearly 100 Argosy faculty, academic-support personnel, and financial-aid counselors,” despite offering “repeated assurances” to the agency he would not do so.
“Professors were called out of classrooms while they were teaching and their employment terminated,” said the letter, which also blasted Argosy’s misspending of student stipends as a “severe breach of the required fiduciary standard of conduct” that “demonstrates a blatant disregard of the needs of its students.”
On Monday a federal judge, Thomas M. Parker, will hear arguments on whether the receivership should continue. Parker recently expressed concerns that it may be “doing more harm than good.”
‘Start Over, Free From the Debt’
In the meantime, displaced students are at a fork in the road. They can transfer to other colleges, but those most likely to accept their transfer credits are for-profit institutions. (The Dream Center colleges were classified as for-profit until 2017.) Students stung by their experiences at the Art Institutes and Argosy might find that option unpalatable.
Or they can walk away from their Dream Center credits and request federal-loan forgiveness under a “closed-school discharge.” On Friday, Sanders Fabares, a former Art Institute student from the college’s days as part of EDMC, visited the San Diego campus. Fabares, 39, said both he and his wife graduated from the Art Institute in 2006. They left unhappy with the quality of the education they received, and were weighed down by heavy debts.
Fabares said he wanted the students on the closing campus to be warned about the real-life impact of student debt, “because nobody was there to tell me.” He passed out fliers that read, in bold, “STUDENTS DO NOT DESERVE TO BE TREATED LIKE THIS.”
“Don’t hold on to debt from a closed school with a bad reputation,” the fliers read. “File for a closed-school discharge. Start over, free from the debt from AI.”
Fabares said he had spent five hours on the campus and talked with more than 100 students. The students are being recruited by other for-profit colleges, he said, and were “shocked” to learn they had the option of seeking debt forgiveness instead. Fabares urged the students to join a Facebook group of former Art Institute students, called “I am AI,” that provides advice and support.
“When I was there today, I witnessed a lot of desperate, confused people,” Fabares said, “who were not getting the answers they needed.”
Some have called on the Education Department to answer more of those questions. A week before the campus closures, the American Psychological Association wrote a letter to Secretary DeVos. The letter mentioned students at Argosy University, which had operated eight APA-accredited psychology programs.
“Some of these students are months away from graduating and entering the work force to provide mental-health care, help address the opioid crisis, and treat our veterans,” the association wrote. “We believe that these students should not be penalized and their futures jeopardized because of Argosy University’s mismanagement.”
The letter said that the department’s resources for displaced students — including an online portal and a feedback line — were insufficient. “We do not believe that these resources are adequate to provide students in crisis with the road map or solutions they need,” the letter stated.
A representative of the association told The Chronicle that it had not received a response to its letter. The Chronicle asked the department for comment on the letter, but the agency’s statement did not address it.
If and when another big college chain collapses, the option of loan forgiveness might not be on the table. Under Betsy DeVos, the Education Department is proposing a regulatory change that would make it much harder for students displaced by closures to get rid of their debt. Under the proposal, if a closing college offered a teach-out of the academic program somewhere else, students would no longer qualify for loan forgiveness.
In the past, some teach-out plans have been assembled haphazardly in a college’s final days, and students have complained about poor treatment at the college that takes them in.
Aaron Ament, an Obama-administration official who is now president of the National Student Legal Defense Network, said the Dream Center fiasco shows that the Trump administration needs to rethink its approach.
“This is a perfect example of why we need to strengthen the ability of students to get closed-school discharges,” he said, “rather than pressure them into sometimes-even-worse academic scenarios.”
Dan Bauman contributed to this report.
Michael Vasquez is a senior investigative reporter. Follow him on Twitter @MrMikeVasquez, or email him at michael.vasquez@chronicle.com.
Correction (3/11/2019, 5:50 a.m.): The table with this article, which lists for-profit colleges, originally included Alterius Career Colleges. Alterius is nonprofit. The table has been updated.
