The Education Department Should Review these Risky Schools
Imagine enrolling in a college based on an ad like the one below, promising solutions for students with “No High School Diploma” who feel like they have “No opportunities” and “No future.” The school’s eligibility for federal financial aid lends credibility to its promises and makes it possible for a prospective student to enroll with no money down.
Now imagine that the school, unbeknownst to you, is sold from one shady operator to another, and loses eligibility for federal financial aid, leaving its students confused, in debt, and stranded with no clear path to earning a useful credential. That is exactly what happened to students of the Harris School of Business, which continues to run the above text on its website, even after losing access to financial aid last year and closing its programs for a five-month (and counting) hiatus. The lack of an adequate response from the U.S. Department of Education (ED) has only aggravated the situation. Harris School of Business and affiliated for-profit brands (including Branford Hall Career Institute and American College for Medical Careers) lost federal aid eligibility and accreditation last year, but ED still has not notified the schools’ students or the public.
Source: https://www.harrisschool.edu/, March 2, 2021. Note: A pop-up states that several campuses will remain “on break” until the school is able to secure funding.
The Century Foundation and other student advocates have called on the Department of Education to improve transparency, including by informing students when schools are on the brink of losing federal aid eligibility. While we hope that ED takes prompt action to improve transparency, students deserve immediate answers about whether their aid will continue past the end of the month.
To that end, TCF has reviewed Department of Education data to identify troubled schools whose eligibility to participate in federal financial aid programs are expiring and up for review at the end of this month. Three categories of schools face the greatest risk:
schools that qualify for federal aid on a month-to-month basis (“month-to-month schools”).
Moreover, as regulators review financial risks, accreditor concerns, and other actions that could negatively impact students’ educations, additional schools could come under scrutiny.
Structural Changes
Last year, the Art Institute chain of for-profit schools became notorious for being dishonest about their accreditation. The chain’s parent company, Dream Center Education Holding, cooked the books and diverted stipends intended to cover students’ groceries and living expenses. While most Dream Center campuses closed down, fourteen campuses operating under the Art Institute and South University brand were sold to a hastily established shell company in a transaction backed by investment firm Colbeck Capital Management. The change in ownership followed a pattern that has recently drawn scrutiny from the Government Accountability Office, which has objected to a for-profit contractor using contractual agreements and overlapping board members to exert influence and extract resources from a faux nonprofit school.
Changes in ownership and conversions between nonprofit and for-profit status can significantly impact a school’s operation and, as a rule, these changes put an end to a school’s existing certification to receive federal aid. After structural changes, schools operate on temporary, month-to-month arrangements until the Department of Education completes an evaluation of the new structure. Think of it like a lease where the tenant leaves and brings in a replacement: the new resident isn’t on the lease, but the landlord may let the old arrangement continue on a month-to-month basis.
Source: Temporary Provisional Program Participation Agreement obtained through a FOIA request to the Department of Education.
In technical parlance, the month-to-month agreement that applies following a change in school ownership is known as a “Temporary Provisional Program Participation Agreement,” or TPPPA. The following schools are among those that are operating on a temporary basis while the department reviews a significant structural change. Responding to concerns identified by the Government Accountability Office, Department of Education officials recently concurred that the review process must be strengthened.
Ashford University: This online for-profit chain was struggling with lawsuits and flagging enrollments under the ownership of Zovio Inc., a publicly traded corporation. To rehabilitate its image, Zovio sold Ashford to the University of Arizona, which seeks to operate Ashford as a separate and unequal entity dubbed the University of Arizona Global Campus (UAGC). The change in ownership has been under review since December 2020.
Bryant & Stratton: This for-profit chain partnered with a private equity firm, Parthenon Capital, to rapidly expand during the last recession. Following dismal outcomes under the Gainful Employment Rule, which measures graduates’ earnings against their student debt burden they incur, Bryant & Stratton drew scrutiny. Now, the chain seeks to convert to nonprofit status, which would allow owners to avoid taxes and a potential revival of the standards related to the Gainful Employment Rule. After the conversion, the current owners would continue to get paid as the landlords for the schools’ new tax-exempt holding company.
Click here for a list of schools that are on temporary eligibility status for federal financial aid while a structural change is under review by the Department of Education. The schools discussed above are highlighted in this list.
Sign up for updates.
Provisional Status
When the Department of Education brought an enforcement action against DeVry University, the school was placed on a probationary status known as provisional certification with the caveat that it would continue to receive federal aid only if it could shape up and demonstrate that it was no longer engaging in the unscrupulous recruitment practices that had been identified by the Federal Trade Commision, Department of Justice, and Department of Defense.
When schools break the rules, ED often has the authority to end their federal aid or put them on a provisional program participation agreement (PPPA). Schools on provisional certification must come into compliance with the minimum eligibility standards for federal programs as well as any additional conditions that are needed to ensure that the school has resolved its past issues.
If these schools fail to satisfy all of the terms of their provisional contract with the Department of Education, they may be swiftly revoked from federal financial aid eligibility. Once the provisional contract expires, ED may decline to renew certification if prior concerns remain or new problems arise. Alternatively, ED could extend the provisional period, change the terms and conditions, or restore the standard terms of participation.
A batch of provisional agreements expires at the end of each quarter; with agreements for the following schools expiring March 31, 2021:
American Intercontinental University (AIU) is an online for-profit chain owned by Career Education Corporation, which was investigated for predatory practices by attorneys general for all fifty states and the District of Columbia (New York settled separately) before changing its name to Perdoceo Corporation. Following years of probation, AIU continues to play fast and loose with federal rules regulating for-profit colleges. In 2020, AIU’s parent company warned investors that the school’s financial aid eligibility depended on favorable interpretations of “the technical aspects” of federal rules. AIU’s unscrupulous practices could violate its fiduciary duty to the Department of Education and lead to a loss of federal aid.
Education Affiliates (EA) is a for-profit conglomerate created in 2004 by private equity investors JLL Partners to spin struggling colleges into for-profit gold. Investors bought chains like Fortis College, Fortis Institute, Denver College of Nursing, All-State Career School and St. Paul’s School of Nursing, and then rapidly expanded with limited investment in supporting student success. At one Fortis location, 70 percent of graduates earn less than a high school graduate. After failing the Department of Education’s financial standards for ten consecutive years (regulations allow schools “no more than three consecutive years” of failing this standard), EA reported $280 million in negative equity in 2018, and violated the terms of a loan agreement in 2019. These factors weigh against EA’s financial responsibility, which is a core requirement for federal aid.
Provisional status is far more common in the for-profit college sector, a fact which reflects the greater danger posed to students and taxpayers by schools that lack the oversight by non-financial parties and restraint against private enrichment that guide public and nonprofit institutions. We have identified for-profit (including covert for-profit) schools with provisional participation agreements expiring this month.
Month-to-Month Status
When a school’s probationary period ends, sometimes the Department of Education does not extend a new eligibility agreement. Unlike temporary status, which is prompted by a change of ownership review, month-to-month status could be triggered by a number of rationales, including ED lacking the information, resources or clarity needed to reach a more permanent decision on a school’s eligibility. Think of it like a lease that expires with no renewal; the landlord may let the tenant stay on a month-to-month basis, but the future is tenuous.
Center for Excellence in Higher Education owns Stevens Henager College and its online affiliate Independence University. CEHE was sued by the Colorado attorney general and a trial court found the school, its owners, and its executives responsible for knowingly perpetrating a multiyear fraudulent scheme. The Obama administration denied recertification to a school in a nearly-identical situation: following a state court fraud determination, that administration’s Department of Education cut off financial aid to Minnesota School of Business even as that school continued to exhaust its appeals. Moreover, the trial court found CEHE’s owners personally liable for unlawful acts, which creates an additional basis for the school’s loss of federal aid eligibility.
Walden University is being sold by one international firm, Laureate Education Inc., to another large for-profit college operator, Adtalem Global Education Inc. The school is under investigation by the Department of Justice for lying about the availability of clinical placements that nursing students need in order to land jobs upon graduation. Walden’s accreditation status has already been impacted by the investigation and Adtalem’s investors are divided over the riskiness of the acquisition. Although Walden is the second-biggest recipient of federal aid dollars, receiving over $450 million a year, it has been operating on month-to-month status since March 2020.
We have identified fifty-nine schools in the nation that are on month-to-month status with participation agreements that expired anywhere from June 2018 to December 2020; forty-seven are for-profit (or covert for-profit) schools. A recent rule change limits ED’s future use of this status.
Upcoming Issues and Concerns
Through the lax oversight by the DeVos Department of Education, many schools were taken off provisional status despite the potential benefits of continued close monitoring. For example, the University of Phoenix was subject to growth limitations, financial protections, and mandatory benchmarks for improving student outcomes while it was on probation, but those conditions were eliminated by the DeVos ED. As schools come up for review, the new administration’s department should set a high bar and identify new opportunities to protect students and promote strong outcomes for those who take out federal student loans.
Schools that benefited from DeVos’s elimination of the enforcement unit and willingness to turn a blind eye to fraud and abuse could come up for review for many reasons, including the following:
Financial Risk
Late audits and low scores on financial stability are the most common reasons why schools are placed on probation. On their own, financial scores don’t mean much, but if the statements show limited liquidity and negative trends, then ED should make sure that the school has the financial resources and teachout plans that are needed to secure the least disruptive transition for students if a closure must occur. As schools share how the pandemic has impacted their finances, the department must be proactive to ensure that students are not blindsighted by financial weaknesses that escaped prior review.
Scheduled Review and Short-Term Certification
Even healthy schools need a check-up once in a while. Participation agreements can last for up to six years. At the end of that period, ED must review each school’s compliance with the rules for federal aid. If concerns arise, the school may be denied renewal, placed on probation, or scheduled for another check-up. Most reviews go smoothly, resulting in another six-year certification of financial aid eligibility. A shorter time frame can indicate trouble. Of the schools with participation agreements expiring this month, Colorado Technical University, an affiliate of AIU and another subsidiary of Perdoceo, had the shortest term of approval, with less than two years since it executed its last agreement.
Adverse Action Triggers
Recent regulations empower the department to increase protections whenever law enforcement agencies take action against a school, state regulators flag concerns, or investors pull back their investments.
Accreditor Concerns
Schools may be placed on probation when an accreditor takes an adverse action against them. Moreover, schools must be placed on probation if their accreditor is stripped of its power to make quality determinations on behalf of the Department of Education and the schools are unable to secure alternative accreditation. This fate may befall the schools accredited by the Accrediting Council for Independent Colleges and Schools (ACICS), which may soon lose accreditor authority. ACICS lost recognition under the Obama administration, was revived by Secretary DeVos, and recently suffered another blow when an advisory committee voted 11-1 to strip it yet again of its gatekeeping authority.
Time to Restore Responsibility and Transparency
After years of disarray, the U.S. Department of Education must take seriously its obligation to review the eligibility of risky schools that have been allowed to operate more or less freely with questionable adherence to legal requirements. Many schools that have pursued structural changes, rapid growth, and risky practices may not hold up to scrutiny, and students have a right to know when a negative review might be right around the corner.
Yan Cao was a senior fellow at The Century Foundation where she worked on higher education policy with a focus on expanding opportunity, reducing inequality, and ensuring fair outcomes for students.
Kevin Miller was a fellow at The Century Foundation, where he conducted quantitative research on college affordability and accountability. His research focused on the experiences of and outcomes for women and nontraditional students in higher education.
The Education Department Should Review these Risky Schools
Imagine enrolling in a college based on an ad like the one below, promising solutions for students with “No High School Diploma” who feel like they have “No opportunities” and “No future.” The school’s eligibility for federal financial aid lends credibility to its promises and makes it possible for a prospective student to enroll with no money down.
Now imagine that the school, unbeknownst to you, is sold from one shady operator to another, and loses eligibility for federal financial aid, leaving its students confused, in debt, and stranded with no clear path to earning a useful credential. That is exactly what happened to students of the Harris School of Business, which continues to run the above text on its website, even after losing access to financial aid last year and closing its programs for a five-month (and counting) hiatus. The lack of an adequate response from the U.S. Department of Education (ED) has only aggravated the situation. Harris School of Business and affiliated for-profit brands (including Branford Hall Career Institute and American College for Medical Careers) lost federal aid eligibility and accreditation last year, but ED still has not notified the schools’ students or the public.
The Century Foundation and other student advocates have called on the Department of Education to improve transparency, including by informing students when schools are on the brink of losing federal aid eligibility. While we hope that ED takes prompt action to improve transparency, students deserve immediate answers about whether their aid will continue past the end of the month.
To that end, TCF has reviewed Department of Education data to identify troubled schools whose eligibility to participate in federal financial aid programs are expiring and up for review at the end of this month. Three categories of schools face the greatest risk:
Moreover, as regulators review financial risks, accreditor concerns, and other actions that could negatively impact students’ educations, additional schools could come under scrutiny.
Structural Changes
Last year, the Art Institute chain of for-profit schools became notorious for being dishonest about their accreditation. The chain’s parent company, Dream Center Education Holding, cooked the books and diverted stipends intended to cover students’ groceries and living expenses. While most Dream Center campuses closed down, fourteen campuses operating under the Art Institute and South University brand were sold to a hastily established shell company in a transaction backed by investment firm Colbeck Capital Management. The change in ownership followed a pattern that has recently drawn scrutiny from the Government Accountability Office, which has objected to a for-profit contractor using contractual agreements and overlapping board members to exert influence and extract resources from a faux nonprofit school.
Changes in ownership and conversions between nonprofit and for-profit status can significantly impact a school’s operation and, as a rule, these changes put an end to a school’s existing certification to receive federal aid. After structural changes, schools operate on temporary, month-to-month arrangements until the Department of Education completes an evaluation of the new structure. Think of it like a lease where the tenant leaves and brings in a replacement: the new resident isn’t on the lease, but the landlord may let the old arrangement continue on a month-to-month basis.
In technical parlance, the month-to-month agreement that applies following a change in school ownership is known as a “Temporary Provisional Program Participation Agreement,” or TPPPA. The following schools are among those that are operating on a temporary basis while the department reviews a significant structural change. Responding to concerns identified by the Government Accountability Office, Department of Education officials recently concurred that the review process must be strengthened.
Click here for a list of schools that are on temporary eligibility status for federal financial aid while a structural change is under review by the Department of Education. The schools discussed above are highlighted in this list.
Sign up for updates.
Provisional Status
When the Department of Education brought an enforcement action against DeVry University, the school was placed on a probationary status known as provisional certification with the caveat that it would continue to receive federal aid only if it could shape up and demonstrate that it was no longer engaging in the unscrupulous recruitment practices that had been identified by the Federal Trade Commision, Department of Justice, and Department of Defense.
When schools break the rules, ED often has the authority to end their federal aid or put them on a provisional program participation agreement (PPPA). Schools on provisional certification must come into compliance with the minimum eligibility standards for federal programs as well as any additional conditions that are needed to ensure that the school has resolved its past issues.
If these schools fail to satisfy all of the terms of their provisional contract with the Department of Education, they may be swiftly revoked from federal financial aid eligibility. Once the provisional contract expires, ED may decline to renew certification if prior concerns remain or new problems arise. Alternatively, ED could extend the provisional period, change the terms and conditions, or restore the standard terms of participation.
A batch of provisional agreements expires at the end of each quarter; with agreements for the following schools expiring March 31, 2021:
Provisional status is far more common in the for-profit college sector, a fact which reflects the greater danger posed to students and taxpayers by schools that lack the oversight by non-financial parties and restraint against private enrichment that guide public and nonprofit institutions. We have identified for-profit (including covert for-profit) schools with provisional participation agreements expiring this month.
Month-to-Month Status
When a school’s probationary period ends, sometimes the Department of Education does not extend a new eligibility agreement. Unlike temporary status, which is prompted by a change of ownership review, month-to-month status could be triggered by a number of rationales, including ED lacking the information, resources or clarity needed to reach a more permanent decision on a school’s eligibility. Think of it like a lease that expires with no renewal; the landlord may let the tenant stay on a month-to-month basis, but the future is tenuous.
We have identified fifty-nine schools in the nation that are on month-to-month status with participation agreements that expired anywhere from June 2018 to December 2020; forty-seven are for-profit (or covert for-profit) schools. A recent rule change limits ED’s future use of this status.
Upcoming Issues and Concerns
Through the lax oversight by the DeVos Department of Education, many schools were taken off provisional status despite the potential benefits of continued close monitoring. For example, the University of Phoenix was subject to growth limitations, financial protections, and mandatory benchmarks for improving student outcomes while it was on probation, but those conditions were eliminated by the DeVos ED. As schools come up for review, the new administration’s department should set a high bar and identify new opportunities to protect students and promote strong outcomes for those who take out federal student loans.
Schools that benefited from DeVos’s elimination of the enforcement unit and willingness to turn a blind eye to fraud and abuse could come up for review for many reasons, including the following:
Financial Risk
Late audits and low scores on financial stability are the most common reasons why schools are placed on probation. On their own, financial scores don’t mean much, but if the statements show limited liquidity and negative trends, then ED should make sure that the school has the financial resources and teachout plans that are needed to secure the least disruptive transition for students if a closure must occur. As schools share how the pandemic has impacted their finances, the department must be proactive to ensure that students are not blindsighted by financial weaknesses that escaped prior review.
Scheduled Review and Short-Term Certification
Even healthy schools need a check-up once in a while. Participation agreements can last for up to six years. At the end of that period, ED must review each school’s compliance with the rules for federal aid. If concerns arise, the school may be denied renewal, placed on probation, or scheduled for another check-up. Most reviews go smoothly, resulting in another six-year certification of financial aid eligibility. A shorter time frame can indicate trouble. Of the schools with participation agreements expiring this month, Colorado Technical University, an affiliate of AIU and another subsidiary of Perdoceo, had the shortest term of approval, with less than two years since it executed its last agreement.
Adverse Action Triggers
Recent regulations empower the department to increase protections whenever law enforcement agencies take action against a school, state regulators flag concerns, or investors pull back their investments.
Accreditor Concerns
Schools may be placed on probation when an accreditor takes an adverse action against them. Moreover, schools must be placed on probation if their accreditor is stripped of its power to make quality determinations on behalf of the Department of Education and the schools are unable to secure alternative accreditation. This fate may befall the schools accredited by the Accrediting Council for Independent Colleges and Schools (ACICS), which may soon lose accreditor authority. ACICS lost recognition under the Obama administration, was revived by Secretary DeVos, and recently suffered another blow when an advisory committee voted 11-1 to strip it yet again of its gatekeeping authority.
Time to Restore Responsibility and Transparency
After years of disarray, the U.S. Department of Education must take seriously its obligation to review the eligibility of risky schools that have been allowed to operate more or less freely with questionable adherence to legal requirements. Many schools that have pursued structural changes, rapid growth, and risky practices may not hold up to scrutiny, and students have a right to know when a negative review might be right around the corner.
Tags: U.S. Department of Education, for profit college, higher education