For-profit chain sues Ed. Dept. and DeVos, wants to restructure

Education Dive. October 19, 2018

Dive Brief:

  • For-profit college operator Education Corporation of America (ECA) filed a lawsuit in a federal district court in Alabama against the Education Department and its Secretary Betsy DeVos that asks the court to appoint a receiver to oversee the company’s assets so it can avoid bankruptcy and restructure while completing a teach-out of campuses slated for closure.
  • The lawsuit said the company has essentially stopped making payments on its debt and is facing evictions on some of its campus. The company relies on tuition and fees for the bulk of its revenue and has recently faced steep declines in enrollment. Restructuring without entering bankruptcy protection would let them maintain critical access to federal student aid.
  • ECA wants the court to shield it from its creditors and evictions so some of its institutions can “go forward with their educational missions,” while others undergo the teach-out process and then close.

Dive Insight:

ECA is one of several for-profit operators that have struggled or shuttered since the Obama administration cracked down on the sector by removing recognition from several accreditors. The tight regulatory environment came after the collapse of for-profit chains ITT and Corinthian Colleges, which have been accused of predatory marketing practices that left students with high debt and useless or incomplete degrees.

The accreditor for all three operators, the Accrediting Council for Independent Colleges and Schools (ACICS), was among those that lost their federal recognition when the Obama administration tightened the rules for accreditors. It removed the group’s federal recognition, which is required to access Title IV funds, in 2016.

The embattled accreditor may soon have its federal recognition fully restored as the Education Department determines its fate. The department found the accreditor was in compliance with 19 out of 21 requirements for recognition and gave it a year to satisfy the remaining requirements, though some question the extent of its compliance.

The left-leaning policy institute Center for American Progress has said the colleges ACICS oversaw have “almost universally started moving on,” noting the majority of the still-standing schools are in the process of or have already obtained a new accreditor.

The ECA-owned chain Virginia College, which is named as a plaintiff in the lawsuit and operates more than 22 colleges with 70 campuses across the U.S., unsuccessfully sought recognition from the Accrediting Council for Continuing Education earlier this year, Inside Higher Ed reported. The accreditor denied Virginia College because it did not meet some of its standards such as graduation and job-placement rates.