“Instead of taking the next few months to close in an orderly fashion, ECA took the easy way out and left 19,000 students scrambling[.]”
– Liz Hill, spokesperson for the U.S. Department of Education

Last week, Education Corporation of America (ECA), a for-profit college conglomerate that has operated chains like Virginia College, Brightwood, and Golf Academy, hastily announced the sudden closure of campuses nationwide. Estimates suggest that nearly 20,000 students across the United States will be impacted.

The fate of these students remains unclear. Those who try to continue their educations will face an uphill climb in attempting to find institutions that will accept the sullied credits provided by ECA brands. A scathing accreditation report, released by the Accrediting Council for Continuing Education and Training (ACCET) this summer, revealed that ECA schools systematically failed to meet baseline standards for educational quality, did not communicate accurate and consistent information to students and regulators, and failed to prepare students for employment in their fields of study.

Students who seek to discharge federal student loan debts similarly face an uncertain road ahead. The Obama administration finalized rules in 2016 providing loan discharge options for students in cases of sudden school closures, as well as in cases where schools have misrepresented important information to students. Following a lawsuit from students and consumer advocates who challenged unlawful delays, U.S. Secretary of Education Betsy DeVos finally announced steps yesterday to implement automatic closed school discharges. These loan discharges have long been owed to students impacted by the April 2015 closure of the Corinthian Colleges chain of for-profit colleges. DeVos has proposed to eliminate automatic or group discharges for all students, requiring them to individually navigate the complex claims process. The department’s communications to ECA students have also focused on closed school discharges while failing to mention the borrower defense discharge option, which is available to students who were misled by their schools. The department’s relief unit is reportedly operating on a shoestring budget with insufficient staff, and the backlog of borrower defense claims is already hundreds of thousands of students deep.

The situation is particularly dire for a subset of ECA students who are experiencing the nightmare of a sudden school closure for a second time. When a Virginia College nursing program was criticized for producing low pass rates on the National Council Licensure (NCLEX-RN) examination, passage of which is required to become a licensed nurse, ECA tried to excuse these poor outcomes by pointing to its enrollment of “displaced students following the closure of ITT Technical Institute.” However, ECA was unable to justify “its acceptance of ITT students whom it could not adequately train to pass the NCLEX exam.”

Currently, ECA is encouraging students to transfer to schools like Fortis Colleges & Institutes, another private equity-fueled for-profit chain, which paid $13 million in 2015 to resolve allegations of misleading students in five states. DeVos’s proposal to rewrite the rules for student relief would block students from choosing to obtain loan relief if ECA formally entered a teach-out agreement with Fortis, or any other school, regardless of whether ECA students wanted to attend those schools.

ECA’s Desperate, and Deceptive, Measures to Boost Revenues

“They took our money, they shut the school down and that’s it for us[.]”
ECA student

For many students, ECA’s sudden closure came as a shock. Just one month ago, as it argued in court that it should be kept alive for the sake of its students, ECA collected and filed hundreds of handwritten statements from currently enrolled students describing how they would be harmed by an abrupt closure. One student wrote, “I’m a single mother of three children trying to better my life and in order to better my life I need to finish college. Y’all closing before me completing my education will burden the future of me and my children.” Another stated, “I am 54 years old. Recently took retirement of 18 yrs from my job in the Financial Industry (mortgage loans). My decision to go back to school for Pharmacy Technician was to re-invent myself. I need to continue my education here at [Virginia College] Biloxi and graduate in order to accomplish this.”

But, while ECA owners were willing to highlight student voices as part of a failed legal bid to keep the pipeline of federal tax dollars flowing to the financially insolvent school, those student voices ceased to matter as soon as the profits dried up. In a letter to ECA president Stu Reed, Alabama Senator Doug Jones (D) expressed concern for the nearly 20,000 students, including 4,000 veterans, who were enrolled at ECA at the time of its closure, saying that these students “have invested thousands of dollars into your institution and could potentially lose everything.”

Early indicators suggested that ECA engaged in unlawful practices in order to maximize its financial aid revenues. For example, a civil rights lawsuit filed by Mississippi Center for Justice in 2012 alleged that a campus in Jackson “made fraudulent misrepresentations” about its charges and fees, employment outcomes, and the transferability of credits, and, further, that ECA targeted its recruitment to enroll students who were disproportionately African American (90 percent) and female (80 percent). This suit, like others, was removed from court and resolved by a secret arbitration—a practice that has been common among for-profit colleges but is now unlawful for schools seeking access to federal funding. This year, the skeletons of lawsuits like this began to tumble out of ECA’s closet, first when an accrediting agency demanded a record of recent actions against ECA—twenty-five state and federal actions, thirteen civil lawsuits—and then when ECA inadvertently filed a record of its arbitration history in a Hail Mary attempt to block further lawsuits.

For years, ECA has maintained profitability by aggressively enrolling students and harvesting their taxpayer-backed educational aid benefits, including GI Bill benefits for servicemember students, Pell Grants for low-income students, and millions of dollars in student loans that could leave students in debt for decades after ECA’s closure. In 2015, ECA’s lucrative Virginia College drew down $230 million or 84 percent of its operating revenue from Title IV. For some Brightwood College locations, Title IV dollars comprised upward of 87 percent of revenue.

As revealed in recent court filings, “Because ECA’s revenues are produced almost entirely by tuition and fees paid by students, the enrollment decline has negatively impacted ECA’s financial condition and cash flow.”

As enrollment began to drop, ECA became even more aggressive at cutting costs and bending the truth. It pushed a cost-cutting shift to online learning, ignoring frequent student complaints that they did not have access to computers or the internet. Management issued a stunning directive to employees: “You must not talk to prospects about the new programs.” Students were left with unqualified instructors, and ECA lied about employment outcomes: a Virginia College graduate with a four-year degree in business administration was counted as a success for obtaining a part-time job as a grocery bagger.

Still, all this was not enough to generate the volume of new student enrollments that ECA desperately needed to maintain profitability.

ECA’s Final Business Decision

“We understand business decisions.”
– Steve Gunderson, Career Education Colleges and Universities

In hasty emails to students and employees, ECA executives say that their original plan to proceed with an orderly closure was dependent on “the commitment of capital from our investors” and “additional funds from investors.” However, in contradiction with its student-oriented overtures, in the end, ECA acted as a profit-maximizing institution.

ECA is a Birmingham, Alabama-based corporation with support from private investors such as Chicago’s Willis Stein & Partners, and, more recently, Monroe Capital LLC, a firm specializing in “opportunistic private credit investing.” ECA blamed its closure on the U.S. Department of Education, which imposed heightened monitoring, and on its accreditor, the Accrediting Council for Independent Colleges and Schools (ACICS), which withdrew accreditation in the final days before ECA’s closures. While it is likely that these actions did result in ECA’s “inability to acquire additional capital to operate our schools,” ECA could have operated at a loss in order to improve educational outcomes for its students. As with so many decisions in ECA’s history, however, this sudden closure reflects ECA’s obligation to ignore student interests that come into conflict with protecting its bottom line. As Steve Gunderson, president of the for-profit college group Career Education Colleges and Universities stated, “sudden closures are the worst moments for our sector because they provide no time for students to transfer; and no time for staff to prepare.” And yet, these sudden closures continue to recur within the for-profit sector of higher education.

How to Respond

Measures to prevent, and in response to, behavior like ECA’s are available at both the federal and state levels; federal-level safeguards and interventions, however, have been under attack since the new administration’s inauguration. Timely implementation of the 2016 Borrower Defense rules, for example, would have required schools like ECA to report on student-initiated arbitration, as well as other lawsuits and adverse actions by accreditors. But DeVos’s Department of Education has delayed implementation and has proposed to overturn arbitration rules, which would allow federal and state regulators to identify abuse earlier and put a stop to predatory patterns that harm students. Furthermore, the department has been delaying full implementation of financial responsibility rules, which might also have caught ECA’s decline before its collapse.

ECA’s closure should give DeVos pause on unwinding protections that could prevent the next collapse. Additionally, in the absence of adequate federal oversight, state-level interventions are still an option. For instance, to bolster financial accountability, state policymakers can update student tuition recovery funds, many of which were designed to address fly-by-night trade schools and are poorly adapted to the era of massive closures by for-profit college chains like Corinthian Colleges, ITT Tech, and ECA. Additionally, while the Department has allegedly eliminated staffing for all investigations of fraud and abuse by schools like ECA, state regulators and enforcement officials at the eighteen states impacted by this closure can and should investigate to identify whether ECA-affiliated student loans are eligible for discharge. The numerous entities that have previously initiated investigations of ECA’s activities should coordinate to identify system-wide problems.

Finally, federal–state collaboration is also possible, and can help to inform students about their rights and resources. Communicating timely and accurate information with students about their options is critical: when Corinthian collapsed, state attorneys general stepped in to share borrower defense discharge information with defrauded students. Ultimately, the department must observe its legal obligation as a loan holder to inform students of closed school discharge rights, and must provide accurate information to students about borrower defense discharges. Currently, the Department’s “Fact Sheet” for ECA students describes the loan discharge process but fails to mention borrower defense relief as an option for students.

As Department of Education spokesperson Liz Hill stated, ECA’s “decision to suddenly close its campuses is highly disappointing and not best for its students.” But the department should not compound ECA’s closure with even more disappointments for students. In 2015, when revelations of fraud felled the Corinthian Colleges for-profit chain and left 16,000 students out in the cold, the Obama administration was spurred into action. Now, three years later, the department is limping forward on the relief it owes to Corinthian students, but it remains to be seen whether over 19,000 students harmed by ECA’s recent collapse will be able to prompt policies that support relief from the DeVos Department of Education.