When the Education Department approved a proposal by Dream Center, a Christian nonprofit with no experience in higher education, to buy a troubled chain of for-profit colleges, skeptics warned that the charity was unlikely to pull off the turnaround it promised.
What they didn’t foresee was just how quickly and catastrophically it would fail.
Barely a year after the takeover, dozens of Dream Center campuses are nearly out of money and may close as soon as today. More than a dozen others have been sold in the hope they can survive.
The affected schools — Argosy University, South University and the Art Institutes — have about 26,000 students in programs spanning associate degrees in dental hygiene and doctoral programs in law and psychology. Fourteen campuses, mostly Art Institute locations, have a new owner after a hastily arranged transfer involving private equity executives. More than 40 others are under the control of a court-appointed receiver who has accused school officials of trying to keep the doors open by taking millions of dollars earmarked for students.
The problems, arising amid the Trump administration’s broad efforts to deregulate the for-profit college industry, began almost immediately after Dream Center acquired the schools in 2017. The charity, started 25 years ago and affiliated with a Pentecostal megachurch in Los Angeles, has a nationwide network of outreach programs for problems like homelessness and domestic violence and said it planned to use the schools to fund its expansion.
Now its students — many with credits that cannot be easily transferred — are stuck in a meltdown. On Wednesday, members of the faculty at Argosy’s Chicago and Northern Virginia campuses told students that they had been fired and instructed to remove their belongings. In Phoenix, an unpaid landlord locked students out of their classrooms. In California, a dean advised students two months away from graduation not to invite family to attend from out of town.
“In less than a month, everything I have worked for the past three years has been taken from me,” said Jayne Kenney, who is pursuing her doctorate in clinical psychology at Argosy’s Chicago campus. “I am also conscious of the fact that what seems like the swift fall of an ax in less than one month has in reality been festering for years.”
The fall accelerated last week when the Education Department cut off federal student loan funds to Argosy after the court-appointed receiver said school officials had taken about $13 million owed to students at 22 campuses and used it for expenses like payroll. The students, who had borrowed extra money to cover things like rent and groceries, were forced to use food banks or skip classes for lack of bus fare.
Lauren Jackson, a single mother seeking a doctorate at the Illinois School of Professional Psychology, an Argosy school in Chicago, did not receive the roughly $10,000 she was due in January. She has been paying expenses for her and her 6-year-old daughter with borrowed money and GoFundMe donations.
On Tuesday, after three months of not paying her rent, she received an eviction notice.
“I didn’t want to go home and tell my baby that Mommy may not be a doctor,” said Jackson, whose school could close today. “Now I don’t want to go home and tell her that we don’t have a home.”
‘BAD FOR EVERYONE’
Led by Secretary Betsy DeVos, the Education Department has reversed an Obama-era crackdown on troubled vocational and career schools and allowed new and less experienced entrants into the field.
“The industry was on its heels, but they’ve been given new life by the department under DeVos,” said Eileen Connor, director of litigation at Harvard Law School’s Project on Predatory Student Lending.
DeVos, who invested in companies with ties to for-profit colleges before taking office, has made it an agency priority to unfetter for-profit schools by eliminating restrictions on them. She also allowed several for-profit schools to evade even those loosened rules by converting to nonprofits.
That’s what Dream Center wanted to do when it asked to buy the remains of Education Management Corp.
Education Management, once the nation’s second-largest for-profit college operator, was struggling for survival after an investigation into its recruiting tactics resulted in a $200 million settlement in 2015. Despite those troubles, it had 65,000 students, and some of its schools maintained strong reputations.
Dream Center is connected to Angelus Temple, which was founded by Aimee Semple McPherson, a charismatic evangelist once portrayed by Faye Dunaway in a TV movie, “The Disappearance of Aimee.” It is affiliated with the Foursquare Church, an evangelical denomination with outposts in 146 countries.
Buying a chain of schools “aligns perfectly with our mission, which views education as a primary means of life transformation,” Randall Barton, the foundation’s managing director, said when Dream Center announced its plan.
But Dream Center had never run colleges. It hired a team including Brent Richardson, who worked on the conversion of Grand Canyon University to a nonprofit as its chairman, to lead the schools’ corporate parent, Dream Center Education Holdings. He stepped down in January.
Alarms were ringing from the moment the takeover was proposed. Dream Center’s effort to buy the failing ITT Technical Institutes schools had fallen apart after resistance from the Obama administration. When it asked to buy Education Management’s schools, consumer groups, members of Congress and some regional accreditors raised concerns.
But in late 2017, DeVos’ agency gave preliminary approval to Dream Center’s plan.
Almost immediately, the organization discovered the schools were in worse shape than expected, with aging facilities and outdated technology. The universities “were, on the whole, failing without hope for redemption,” the receiver wrote in a court filing last month.
Dream Center had anticipated a $30 million profit in its first year, Barton wrote in a recent legal filing. Instead, it was facing a $38 million loss.
And Dream Center showed little inclination to curb the tactics that got Education Management in trouble, like misleading students about their employment prospects. The executives it installed cultivated a high-pressure culture in which profit surpassed all other concerns, according to a report filed last year by Thomas J. Perrelli, the court-appointed monitor overseeing the schools’ compliance with their state settlements.
By the end of 2018, Dream Center was facing eviction on at least nine campuses and owed creditors more than $40 million, and Education Department officials scrambled to plan for what looked like an imminent implosion.
“We know all too well that precipitous school closures are bad for everyone involved and leave too many students high and dry,” said Liz Hill, an agency spokeswoman. “Teams of people at the department have been working tirelessly on behalf of students — caught up in this situation through no fault of their own — with the singular goal in mind to ensure as many students as possible had options to complete their education.”
A RAPID UNRAVELING
The problems grew in mid-January when a creditor sued Dream Center Education Holdings over unpaid bills and asked a federal court to install a receiver to wind down the insolvent organization. Within a day, a federal judge appointed Mark Dottore, who was working with Dream Center as a paid consultant, as its receiver.
At a forum last month with students at Argosy University in Chicago, Dottore tried to calm an anxious crowd.
“We will make it until June, I can pretty much assure you of that,” Dottore said, according to a recording provided to The New York Times by a student. “By hook or by crook, I’m going to get us there.”
But on Wednesday, Dottore filed an emergency motion describing his plans to sell Argosy’s campuses, plus the South University and Art Institute campuses that haven’t been sold already. Any that didn’t have a buyer by today would close, he said.
Even as Argosy campuses prepared to close, a dean at the American School of Professional Psychology in Northern Virginia emailed students Wednesday, imploring them to attend classes the rest of the week “if we are to save the semester.”
Scott Peck, a 50-year-old student there, left behind a six-figure salary in software and cashed out his 401(k) savings to pay for his doctorate. But he feels worse for his younger classmates.
“What’s so heartbreaking is to see what’s happening to these kids in their 20s, who are believing things they’re told by people that they trust,” he said.
Argosy was supposed to pay students the extra money they had borrowed, then seek reimbursement from the government. But Argosy reported that the money was paid out even though it wasn’t, Dottore wrote in court filings, and used the reimbursements for operating expenses instead.
A Dream Center spokeswoman did not respond to requests for comment on the fraud accusation.
While Argosy students have little hope of getting back money they paid out of pocket, the Education Department said the federal loan debt of affected students would be forgiven for this semester. If the schools close, students can seek help under a program covering school shutdowns.
A PARTIAL RESCUE
Not all of the Dream Center schools are under threat of an immediate shutdown. Some were recently shunted to a new owner in a deal partly orchestrated by the Education Department.
But the arrangement with Studio Enterprise, a Los Angeles company that provides support services for creative-industry training programs, raises its own questions. Studio is personally funded by the principals of Colbeck Capital Management, a New York private equity firm that set up the nonprofit owner.
Dream Center said in July that it would close more than 30 ailing campuses across all three chains, but a few months later it reached a deal with Studio to salvage some Art Institute locations.
As Dream Center’s problems mounted in December, the Education Department called an emergency meeting. Studio agreed to coordinate an acquisition of eight Art Institute campuses and, at least temporarily, six South University campuses.
To maintain their nonprofit status, the agreement gave Studio the right to pick a nonprofit to buy the schools. Colbeck Capital used a Delaware-based nonprofit it created five years ago, renaming it the Education Principle Foundation, according to a state filing uncovered by the Republic Report, a site that has closely tracked Dream Center’s unraveling.
In mid-January, a news release informed the 15,000 students at 14 Arts Institute and South campuses that their schools were owned by a foundation that hadn’t existed three weeks earlier. Two people familiar with the foundation’s plans said it intended to spin the South campuses off under their own leadership.
Robin Von Bokhorst, listed in legal filings as the foundation’s president, did not respond to requests for comment.
Bryan Newman, Studio’s chief executive, said the Art Institute schools had been “ignored for years.”
“We’re coming in with the view that these schools need investment,” he said.
Consumer groups and lawmakers, however, are questioning the arrangement. Two Democrats in Congress have asked the Education Department’s inspector general to investigate the department’s role in the deal.
The fate of the schools in receivership is still being sorted out. The judge who appointed Dottore scheduled a hearing for Monday to determine if he should be removed. Creditors have complained about his close ties to Dream Center, and the judge wondered if Dottore was managing the situation in a way that did “more harm than good.”
Many students agree.
“The way they presented the receivership was that it would be beneficial to the students, but it’s actually been detrimental,” said Marina Awed, a student at an Argosy school in California, Western State College of Law, who was scheduled to graduate in two months. “It shouldn’t be this easy to defraud the Department of Education.”