Amid Controversy, ED to Cancel Debt of Dream Center Students, Restore Pell Eligibility, Extend Window for Forgiveness

By Joelle Fredman, NASFAA Staff Reporter

The Department of Education (ED) announced Friday it would forgive the loan debt and restore the Pell Grant eligibility of students who attended two closed art institutions previously owned by the troubled nonprofit group, Dream Center Education Holdings, and extend the window in which students from 24 other closed Dream Center schools can apply for forgiveness. This news comes after a bipartisan group of attorneys general wrote to ED demanding relief for Dream Center students, and a member of the House education committee revealed he had documents proving ED sent millions to Dream Center campuses deemed ineligible for federal student aid.      

The Dream Center collapsed in March 2019, just 24 months after purchasing Argosy University and the Art Institutes chain from the for-profit Education Management Corporation (EDMC), and after being found non-compliant with federal and state laws, its accreditors, and having been flagged for mismanaging schools. ED’s Friday announcement focused on forgiving the debt of more than 1,500 students who were enrolled at the Art Institute of Colorado and the Illinois Institute of Art between Jan. 20, 2018 and Dec. 31, 2018, in total cancelling about 4,000 loans. 

Last month, Rep. Bobby Scott (D-Va.), chairman of the House Committee on Education and Labor, wrote in a letter to Education Secretary Betsy DeVos out of concern that those two for-profit Dream Center institutions disbursed $10.7 million in federal financial aid — in both grants and loans — to students despite being ineligible for Title IV funds during the period in which they were pre-accredited. To receive federal funds, for-profit institutions must be fully accredited, Scott explained, and the documents suggest that ED, without approval, retroactively considered those schools to be non-profits.   

Scott wrote that the documents “raise questions about whether [ED] unlawfully released these funds to Dream Center while the schools were not fully accredited.” 

In Scott's response to ED's Friday announcement, he added that “over the past several months, the committee presented clear evidence that [ED] and Dream Center schools knew that the for-profit chain was on the verge of closure but failed to notify existing and potential Dream Center students."

“For a limited number of former Dream Center students, today’s announcement provides meaningful debt relief. But for the vast majority of defrauded students, this announcement cancels only a small portion of the loans they took out to attend a failing school," he said in a statement. “Although [ED] has finally taken a step in the right direction, this announcement falls well short of what Congress requested, and well short of what students deserve.”

In ED’s announcement, it wrote that it decided to cancel Dream Center students’ loans and restore their Pell Grant eligibility because they were harmed by the schools’ accreditor, the Higher Learning Commission (HLC), which classified the institutions “in a newly developed and improperly defined accreditation status after January 20, 2018.”

“The Department is concerned that the Art Institute of Colorado and the Illinois Institute of Art were actually fully accredited from January 20, 2018, until their closings at the end of the year. Because HLC has required these two schools to note on student transcripts that credits and degrees earned during this period are from a non-accredited institution, students have been harmed as they seek transfer credit and employment elsewhere,” ED wrote. 

Last month, a bipartisan group of state attorneys general asked DeVos in a letter to help more Dream Center students, urging her to direct ED to expand the 120-day withdrawal window for students to qualify for a closed school loan discharge. The group wrote ED should include students who withdrew after Oct. 17, 2017, which is the date the Dream Center first took control of the institutions from EDMC. 

"The circumstances of the closures of the [Dream Center] schools are most unusual and egregious, necessitating an even longer discretionary window," the group wrote.

In Friday’s announcement, ED wrote that it would extend that period of time to June 29, 2018, which would allow an additional 300 borrowers to apply for forgiveness. 

“[ED] is committed to holding institutions and accreditors accountable to the students they serve,” DeVos said in a statement. “In this instance, students were failed and deserve to be made whole. By canceling these students’ loans and restoring their Pell eligibility, as well as extending the closed school discharge period, we hope that these impacted students will now have the tools and resources they need to complete their education.”


Publication Date: 11/8/2019

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