Argosy University Collapse Exemplifies Lax Protection of Students—and Taxpayers—Under DeVos

Argosy University, a for-profit college serving  8,800 students at 22 sites across the country, shut down suddenly last Friday.  Actually the collapse has been happening since 2017, but somehow across Argosy’s many campuses most people didn’t quite connect the dots.

And the U.S. Department of Education didn’t intervene until it became clear that the Argosy University had used $13 million in student financial aid for another purpose: paying off the debts of the collapsing institution. Finally when fraud was documented, the Department was forced to step in and deny further financial support in the form of student loans and grants. The university was so completely dependent on federal financial aid for its operations that, when the money stopped arriving, it closed mid-semester. It seems that Argosy was known for its graduate programs in psychology, and its closure leaves its students—some in the midst of writing their dissertations—in the lurch.

Argosy University was part of Dream Center Education Holdings—a nonprofit, religious social service agency.  NY Times reporters Stacy Cowley and Erica Green explain that when Dream Center acquired colleges and trade schools from the failing Education Management Corporation in 2017, Dream Center hoped to make a profit to support its charities. “But Dream Center had never run colleges… Almost immediately, the organization discovered the schools were in worse shape than expected, with aging facilities and outdated technology… Dream Center had anticipated a $30 million profit in its first year…. Instead, it was facing a $38 million loss.”

While last Friday’s closure may have seemed sudden, there were a lot of warning signs, including that Argosy University was in receivership.  Cowley and Green report: “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.”

The Washington Post‘s Danielle Douglas-Gabriel has been covering the story in a number of in-depth reports since mid-February. Dream Center has been trying to turn Argosy University from a for-profit into a nonprofit college.  On February 27, Douglas-Gabriel explained why: “Turning the schools into nonprofit entities meant they… (would) no longer (be) subject to what’s known as the 90/10 rule, which bars for-profit colleges from getting more than 90 percent of their operating revenue from federal financial aid. But the conversion was never finalized, and Dream Center’s deteriorating financial conditions gave the Education Department pause.”  DeVos’s department eventually blocked the institution’s conversion to non-profit status.

The U.S. Department of Education, which under Betsy DeVos, has been known for relaxing regulation of the for-profit higher education sector, was finally forced to step in to investigate when, in mid-February, $13 million in student financial aid disappeared without reaching the students.  Apart from paying tuition, federal loans and grants are designed to help students with living expenses, but last month, Argosy, trying to stay in business, spent the money to pay for its own operations.  On February 18, Douglas-Gabriel reported: “In light of those financial woes, the U.S. Education Department… placed restrictions on Argosy’s ability to receive financial aid, requiring the school to provide additional paperwork.  The Education Department provided the aid funds, but Argosy failed to give students the money left over after tuition is covered, known as loan credit balance stipends.  Students often use those dollars to pay for living expenses.”  On February 27, Douglas-Gabriel added that documentation provided by the receiver, Mark Dottore, showed, “Argosy used $4.2 million of the money to pay staff, $2.1 million to pay vendors and $1.7 million for operational expenses.”

Douglas-Gabriel reports that during February there were clear warning signs of Arogsy’s pending demise: “An Argosy campus in Phoenix ceased operation after being locked out of the premises. Meanwhile, Dottore fired Argosy’s chancellor, and nearly 100 faculty, academic support personnel, and financial aid counselors…. In some cases, professors were pulled out of class in the middle of teaching.”

Last Friday after the Department of Education had cancelled all loans and grants paid to Argosy this semester and as Argosy shut down, Douglas-Gabriel updated the report: “With the permission of their professors, psychology students at Argosy University in Chicago… grabbed books from the school library and from faculty members who were vacating their offices… Similar scenes… played out at other Argosy campuses as the chain of 22 career schools… closed Friday amid allegations of fraud. University staff and accreditation bodies are frantically working to give students paths to complete their degrees… ‘Everyone’s trying to help everyone, and our students trust us to try, but things are very confusing, ever-changing, and sad,’ said Deborah Lewis, a psychology professor at Argosy in Phoenix. ‘Our dean and I are trying to complete a dissertation defense with a student that was almost done. He’s in his tie presenting while security takes out the chairs from the room.'”

The U.S. Department of Education is being criticized for failing to arrange what is called a “teach-out plan” for Argosy’s students.  On Friday, Douglas-Gabriel reported: “The Education Department has faced criticism for being unresponsive and ill-prepared to help Argosy students. A group of Democratic senators, led by Sen. Richard J. Durbin (Ill.), chastised the federal agency for failing to coordinate with Argosy’s accreditor to ensure a path for students to complete their studies—known as a teach-out plan—was in place when the university lost access to federal funds. Those plans typically include a list of comparable programs at other schools that have agreed to absorb students.”

But in their report for the NY Times, Cowley and Green more broadly criticize the Department under Betsy DeVos for allowing the crisis to fester for two years while students received millions in tax-supported financial aid to attend a for-profit college that was destined to fail from the outset —leaving many students with debt and at the same time non-transferable credits: “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… Ms. 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.”