May 16, 2018

Inside a For-Profit College Conversion: Lucrative Ties, Troubling Actions

Inside a For-Profit College Conversion: Lucrative Ties, Troubling Actions

The once for-profit Art Institutes are now run by the non-profit, faith-based Dream Center. But they’re connected to the new Woz U and a web of for-profit companies — raising questions of conflict of interest and legal compliance. 

On the phone, Brent Richardson, the CEO and co-chairman of the new non-profit Dream Center Education Holdings LLC (DCEH), seemed to be losing patience.

DCEH was now running the Art Institutes (Ai), Argosy University, and South University — chains of career colleges, with about 60,000 students across the country, that it acquired in a $60 million deal last year from the troubled, collapsing for-profit college business Education Management Corporation (EDMC).

On March 15, DCEH had publicly announced a new partnership with Woz U, a brand-new, unaccredited, for-profit computer coding “bootcamp” named for its well-known front man Steve Wozniak, one of the two founders of Apple.

But on the conference call later that month, the DCEH Art Institutes project team, along with members of the company’s legal, compliance, and IT teams — all EDMC holdovers based in Pittsburgh — presented Richardson and the company’s chief information officer with a spreadsheet listing more than 60 questions about the structure and legality of the proposed DCEH-Woz U arrangement.

Richardson responded with anger in his voice. “Pittsburgh,” he said, “is the place where things go to die.” He told the staffers that he was tired of the incompetence.

I run DCEH, Richardson said. I run Woz U.

That was true. Richardson, while serving as head of DCEH, which is a subsidiary of the faith-based, Los Angeles-headquartered non-profit Dream Center, is also the chairman of the board of Woz U., which is connected to a network of for-profit companies owned or staffed by Richardson, his close relatives, and long-time associates.

You can file a complaint, Richardson said on the call with his staff, but I’m not going to answer your 62 questions. Go back to work, he said, or whatever you do. For some of those listening, Richardson’s tone was not just hostile, but intimidating. 

This didn’t seem like the kind of altruistic approach promised when the Dream Center announced back in March 2017 that it was buying the EDMC schools (purchase agreement here), which had been failing under the weight of media and congressional exposes, law enforcement actions, and declining enrollments. The Dream Center’s mission is “to connect broken people to a community of support by offering free resources and services that address immediate and long-term needs in the areas of poverty, addiction, and abuse,” and in the announcement, Randall Barton, managing director of the Dream Center, and the new executive chairman of DCEH, explained, “Our board made the determination that we felt higher education opportunities were a missing component of our efforts to help people transform their lives and become productive citizens.” The Dream Center pledged that it would operate the former EDMC schools as non-profits “with the intent of investing a percentage of revenue into humanitarian and charitable programs supported by the Dream Center Foundation in Los Angeles and throughout the United States.”

Despite that lofty rhetoric and charitable promise, some critics expressed skepticism as soon as the deal was proclaimed. Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, and a long-time observer of the for-profit higher education industry, told the Pittsburgh Post Gazette, “It is very unlikely that an outfit like EDMC and its really damaged assets can be redeployed for charitable purposes without continuing the practices that have gotten it in trouble in the first place.” He added, “Being a nonprofit versus a for-profit is not indicative as better for students. I’d imagine this is mostly cosmetic, and the actual conduct of these campuses will not change.”

Fifteen months after Nassirian made that prediction, with the Donald Trump-Betsy DeVos Department of Education having abandoned meaningful oversight of predatory college abuses, interviews by Republic Report with employees inside the DCEH operation, and a review of publicly available information, raise serious questions about Brent Richardson’s operation of the new enterprise — questions about conflicts of interest and whether the now non-profit schools are being leveraged to create revenue for for-profit enterprises tied to Richardson; questions about misrepresentations to students regarding the accreditation status of DCEH schools; questions about evasion of responsibilities to comply with federal regulations aimed at protecting vulnerable students.

The DCEH employees, who asked not to be named because of concerns about their careers, said the ethics and integrity of the operation are worse than they were under EDMC. Which, given the checkered past of EDMC management, is really saying something.

DCEH has not responded to requests to interview Brent Richardson or other executives about the issues raised in this article. The Dream Center and Steve Wozniak also haven’t responded. I also have questions for the DeVos Department of Education, whose press office said it was planning to get back to me but hasn’t yet.

Today’s for-profit to non-profit conversion gold rush

More than a decade ago, Brent Richardson helped engineer the transformation of Arizona-based Grand Canyon University from a modest religious non-profit school into a lucrative, multi-billion-dollar, publicly-traded for-profit giant, one that rode a wave of lax oversight by the Department of Education under George W. Bush and resulting record enrollments and revenues for the for-profit college industry. Much of the industry’s receipts come from taxpayer-funded student grants and loans, which peaked at about $32 billion in a single year, about a quarter of federal student aid to all colleges and universities — even though the industry had only 10 percent of the students. 

But many schools in the industry spent heavily on advertising and recruitment, as well as executive salaries, rather than investing in instruction, and many students — veterans, single moms, people of color, immigrants, and others seeking a better future — were left without the careers they sought and facing insurmountable student loan debt

After deceptive recruiting and other misconduct at for-profit college companies had trashed the reputation of the industry and prompted greater regulation and investigations by the Obama administration and various states, sharp operators in the industry initiated a new approach — converting their schools to non-profits. Such conversions could allow these schools not only to shed the stigma they had created with their bad behavior but also to avoid the somewhat tougher federal rules governing for-profits.

There’s a catch, though. Non-profits are supposed to be operated for charitable purposes, not private benefit. For non-profit schools, that means operated primarily for the benefit of students.

But these for-profit college operators structured their non-profit conversions in ways that allowed the prior for-profit owners to keep making big money — through overinflated sale prices from the owner to the new non-profit, or through deals where the old for-profit company would get paid lavishly to provide a range of services to the new non-profit.

The for-profit college industry seemed to assume that the U.S. Department of Education, long deferential to the wishes of college owners, would ratify these dubious transformations. But by the end of the Obama administration, the senior leadership of the Department was fed up with the industry’s blatant abuses, and Secretary of Education John King rejected the application of one of these newly-converted enterprises, which runs CollegeAmerica and other chains, to be treated as a non-profit. The Department found that the primary beneficiary of the conversion was not students but instead the prior owner of the for-profit schools, Carl Barney, who now controlled the non-profit foundation that operated the schools. Secretary King warned that in the future such doubtful deals would be met with similar disapproval. 

Then there was another twist. America elected as its new president the former head of deceptive Trump University, and his Secretary of Education, Betsy DeVos, turned over policy to the for-profit colleges, reopening wide the spigots of taxpayer cash, without regard to shady deals, the performance of schools, or the dire consequences for students. Controversial for-profit giants, including Kaplan and Bridgepoint, have responded by undergoing or announcing troubling for-profit conversions. (Ultimate Medical Academy, a for-profit school whose top executives had included former Trump University management, had already undertaken a dubious conversion to non-profit. Another collapsed predatory for-profit chain, Corinthian Colleges, was sold to non-profit student loan company ECMC, in a deal brokered by the Obama Education Department; the results have been abysmal.)

Grand Canyon, Brent Richardson’s former company, also has taken advantage of this weakened regulatory environment. In 2016, while Richardson was still the company’s board chairman, Grand Canyon had tried to convert its school back into a non-profit, while retaining a for-profit company that would provide services to the school. Its accreditors vetoed the move, finding the proposed relationship with the for-profit too cozy. But in the DeVos era, Grand Canyon seems to have the go-ahead to undergo the same kind of faux non-profit restructuring.  

Now, with the Dream Center purchase finalized, Brent Richardson is spearheading a similar transformation of the EDMC schools, with potential opportunities for Woz U and other for-profit companies in his orbit to make money. And he seems uninterested in having his path blocked by a bunch of inherited former EDMC staffers — people who are cautious after EDMC was forced, in 2015, into a nearly $200 million settlement of fraud cases brought by the U.S. Justice Department and state attorneys general.

The Dream Center targets ITT, then EDMC 

In 2016, while EDMC was rapidly declining, another predatory college company, ITT Tech, was also in trouble with law enforcement and collapsing even faster. The Dream Center privately approached the Obama Education Department about acquiring ITT Tech. Meanwhile, a Dream Center then-board member named Michael Clifford, who had been Brent Richardson’s partner in driving Grand Canyon University, called me to ask what I would think about a non-profit takeover of ITT. (I told Clifford I couldn’t imagine why a charitable group would want to purchase such toxic assets.) The Department of Education sensibly rejected the idea.

By the time Trump was elected, and the opportunity for such deal-making improved, ITT Tech was dead. But the Dream Center had a new target.

EDMC had a troubled history. Its Art Institutes schools — which offer programs in animation, design, film and audio production, fashion, and culinary — had a tradition of solid teaching and student success in many of its departments (and there are still many fine, caring instructors at these schools). But especially after the company went public in 1996 and then, in 2006, was taken over by Goldman Sachs and two private equity firms, and it expanded its online programs, its quality declined, prices rose, and predatory practices — such as making coercive recruiting pitches and admitting students unlikely to succeed in the programs  — escalated.

For years, that strategy worked for top executives and investors: At its peak EDMC was getting some $2.25 billion in revenue, about 80 percent of that from federal taxpayers. But countless students, dropouts and graduates alike, were left buried in debt from EDMC’s sky-high prices.

EDMC’s abuses finally started catching up with it in late 2015, when the company agreed to the $200 million settlement to resolve whistleblower claims of recruiting violations and other abuses. Announcing the settlement, U.S. Attorney General Loretta Lynch called EDMC “a high pressure recruitment mill.” Secretary of Education Arne Duncan added that EDMC “outright lied” to the government when it certified its compliance with the law prohibiting sales commissions. A year later, many of EDMC’s overpriced programs flunked the first test of the Department’s new gainful employment rule, meant to identify and penalize career education programs that consistently leave students with loans they cannot afford to repay.

Non-profit status, once it is formally recognized by the Department of Education, would free most programs at the former EDMC schools from the requirement of complying with the gainful employment rule, although that rule is less of a burden now, because the DeVos Department is on the verge of gutting it. Non-profit status also would liberate the schools from the federal 90-10 rule, the law requiring for-profits to obtain at least ten percent of their revenue from sources other than the Department of Education.

Non-profit status also allows schools to avoid paying taxes, and to gain greater eligibility for state and charitable grants.

Just as importantly, non-profit conversion — which was completed in October 2017, with Richardson writing his staff “Today is the start of a new beginning” — is already allowing the Art Institutes and other DCEH schools to trumpet in communications with prospective students that the schools are, as it says on the Art Institutes website, “NON-PROFIT = EVEN MORE; Even more affordable. Even more accessible. Even more invested.”

Inside a For-Profit College Conversion: Lucrative Ties, Troubling Actions

But behind this non-profit pledge is a web of for-profit companies, including Woz U., tied to Richardson, his family, and his allies.

Richardson and Grand Canyon

When the DCEH-EDMC deal was first announced last year, Brent Richardson was named the new CEO, and it was explained that the acquisition was being financed by a component of the private equity firm the Najafi Companies, with possible additional funding from the Richardson Family Trust, associated with Brent Richardson. That part seemed a bit vague, but suggested a potential conflict of interest: Would Richardson always run DCEH in the best interests of students if his own family’s money was on the line? That was one issue raised by a coalition of organizations and individuals (including me) concerned about the deal.  But those concerns, it turns out, barely scratched the surface of the network of for-profit interests that potentially could enrich themselves off students and taxpayers through the Dream Center’s non-profit facade.

Try to keep your head from spinning as we untangle this web. There won’t be a quiz at the end.

In 2003, the non-profit religious Grand Canyon University was purchased by a group of investors who had formed Significant Education, LLC. They included Brent Richardson, Michael Clifford, and John Crowley. As Clifford later explained, finding the funding wasn’t too difficult: “There were a lot of Wall Street investors that wanted another University of Phoenix, and so I was able to raise capital, and we converted.” Converted not in the religious sense but meaning: to a for-profit.

Brent Richardson, who had been running an online education company called Masters Online, became Grand Canyon’s CEO.  His brother, Chris Richardson, became general counsel of the new for-profit.

Even as they were expanding Grand Canyon in the previous decade, Clifford and Richardson were building ties to the faith-based Dream Center. In a 2004 Arizona Republic article, Richardson talked about offering scholarships for online courses to students who worked at Dream Center missions, which help low-income people. “That’s 20,000 potential students right there,” Richardson was quoted as saying. “We want to create a place where, when they’re done (with the two-year service), they can come here and complete their degree.” (The Republic writer commented, “As with everything else at Grand Canyon, the Dream Center scholarships blend Christ and capitalism.”)

Grand Canyon has not faced the volume of law enforcement probes attracted by the awful behavior of some of the large predatory for-profit chains, such as Corinthian, ITT, Career Education Corp., and EDMC. But Grand Canyon has had weak graduation and student-loan repayment rates, has been charged with improper recruiting practices, and has left many students dissatisfied. The company has in the past run into compliance issues; in 2010 Grand Canyon paid $5.2 million to settle a federal whistleblower lawsuit in which a former employee alleged that the school unlawfully paid sales commissions to recruiters.

Richardson’s work at Grand Canyon and other for-profit college businesses has paid off; for example, his grand, 11,800 square foot Scottsdale, Arizona, residence has thirteen bathrooms and an estimated value of as much as $6.9 million.

Brent and Chris Richardson were not the only family members profiting from Grand Canyon. Their father, Gail Richardson, founded Mind Streams, a lead generation company that finds prospective students for colleges. When Brent Richardson was at Grand Canyon, the company hired Mind Streams to help recruit students. In December 2010, Grand Canyon reported to the Securities and Exchange Commission that it had a revenue-sharing agreement with Mind Streams which “will most likely no longer be permitted” under new Obama-era rules toughening the ban on paying sales commissions.

In 2008, Brent Richardson had been replaced as Grand Canyon CEO by Brian Mueller, a star executive from the industry-leading for-profit University of Phoenix; Richardson became executive chairman; and late that year, the company offered its shares to the public, with an initial offering that brought in $250 million. In 2015, Grand Canyon’s shareholders voted to oust Richardson, based on his failure to attend some of the company’s board meetings, but they were overruled by the other members of the company’s board of directors. Richardson resigned the chairmanship in January 2017. Soon after, the EDMC-Dream Center deal, with Richardson at the helm, was announced.

Richardson’s new network of for-profit companies

Now Brent Richardson and Chris Richardson hold the same titles, CEO and general counsel, respectively, at non-profit Dream Center Education Holdings as they once did at for-profit Grand Canyon. Meanwhile, John Crowley, Richardson’s fellow Grand Canyon investor, is now chief operating officer at DCEH.

The senior vice president of student services at DCEH is Shelley Gardner; her husband Matt Gardner, who works in the same DCEH division, is Brent Richardson’s nephew.

Brent Richardson is now also, as he proclaimed on that phone call with staff, chairman of the board of Woz U, a startup announced with fanfare by Steve Wozniak and Richardson at a Paradise Valley, Arizona, event, attended by luminaries including Senator Jeff Flake (R-AZ), in October 2017.  Woz U announced it would launch as an online school right away and build as many as 30 on-the-ground campuses starting in 2018.

But the announcement evoked concern from Arizona regulators when it developed that Woz U was not only unaccredited but also unlicensed and thus not permitted to operate in the state. The school responded that it wasn’t operating in the state, because it had no campuses there. But it seemed to be headquartered there, in Scottsdale. Richardson also explained to the Arizona Republic that Woz U would be, according to the paper, “routing its students online through its partner, Southern Careers Institute, a private, for-profit technical and trade school in Texas.” But Southern Careers Institute (SCI) also wasn’t licensed in Arizona.

Forced to further explain, a Woz U spokesperson, Shelly Murphy, told the Republic that “there was a miscommunication with the news release and that neither Woz U nor SCI has headquarters in Scottsdale. What is operating out of Scottsdale, she said, is Coder Camps.” Coder Camps, Murphy further explained to the paper, is another coding boot camp “that is managed by the Exeter Education network.” The paper added that Brent Richardson “is also the CEO of Exeter Education.” The paper next discovered, as it wrote, that “Calls made by The Republic to Coder Camp — with an Arizona area code — are answered by an admission representative for Woz U.” The paper also noted that “SCI has a live job posting on its site for a technical recruiter in Scottsdale for Woz U and Coder Camps, further indicating SCI’s presence and Woz U’s physical operation in the state.”

Deepening the confusion, Richardson reportedly told the Republic that “Woz U doesn’t have a relationship with Exeter Education, but that Woz U was operating out of the same building as the network and Coder Camps.”

It all sounded a little fishy.

But it’s actually more fishy.

While last fall Richardson and Murphy seemed to be insisting, despite evidence to the contrary, that the only relationship between Woz U and Coder Camps was sharing a building, a pop-up on that company’s website now explains “Coder Camps has become … Woz U.”

And as to the connections among for-profits Exeter and SCI, Woz U., and non-profit DCEH, there are plenty.

For starters, Jonathan Crowley is the chief financial officer of Coder Camps. He’s also related to John Crowley, the chief operating officer of DCEH. 

There’s much more. At the time of its October 2017 launch, the Woz U “About Us” webpage said, “Led by higher education experts, Exeter Education, students will learn the skills necessary to take flight within the technology industry. Woz U is considered part of Southern Careers Institute (SCI) and will continue to partner with other colleges and institutions as we grow.” By December, the reference to Exeter was removed.  Now the same passage on the Woz U webpage has been modified to omit references to both Exeter and SCI.

But even if Woz U has erased the references to these companies on its website, connections remain.

Brent Richardson is, as noted, the CEO of Exeter Education, which has been described by Inside Higher Ed as Steve Wozniak’s new company. 

Shelly Murphy, who spoke about Woz U to the Arizona Republic, is director of corporate relations for Richardson’s Exeter Education.

Shelly Murphy is also the chief regulatory and government affairs officer at Dream Center Education Holdings.

Southern Careers Insitute, a for-profit career college based in Austin, has seven campuses in Texas, offering programs in medical, business, beauty, automotive, and other fields.

On her LinkedIn page, Susan Blanche indicates that she is “Vice President Human Resources at Southern Careers Institute, Woz U.” Blanche was, from 2006 to 2012, vice president of human resources at Grand Canyon University.

SCI is owned by Tall Oak Learning, which in turn is an affiliate or “partner company” of a firm called Endeavor Capital

In 2005, Endeavor Capital helped rescue a for-profit college that, by Endeavor’s account, “was losing money and in danger of shutting down due to insolvency.” That college was Grand Canyon University, run and partly owned by Brent Richardson and his brother Chris.

Chad Heath, a managing director at Endeavor, sits on the board of Tall Oak Learning, SCI’s parent company. He previously was on the board of Grand Canyon.

So, Endeavor, the company that bailed out Richardson’s Grand Canyon, now owns SCI, which Richardson’s Woz U initially said it was tied to, along with Richardson’s Exeter Education, but Woz U then claimed it’s tied to neither, even though at least one person says she works for both SCI and Woz U, and Richardson says he works for Exeter and Woz U, as well as DCEH, and Shelly Murphy also works for all three. Meanwhile Woz U said it wasn’t tied to Coder Camps, but now Coder Camps says they’ve merged with Woz U.

I know. We need an infographic.

Almost done.

Blue Anvil Marketing, a branding and advertising company launched within the past few years, is also connected to the new DCEH, according to DCEH employees.

Blue Anvil’s executive vice president, Lonnie Sweeney, is Brent Richardson’s sister-in-law. She’s also Vice President, Marketing, at Coder Camps.

According to his LinkedIn page, Austin-based Adrian De La Garza is “VP Marketing at Blue Anvil, Woz U & SCI.”

LinkedIn shows several other employees who list employment at both Blue Anvil and Woz U.

The Woz U-Art Institutes Connection

Then there’s the new publicly-announced relationship between Woz U and DCEH’s Art Institutes.

On March 15, 2018, at South by Southwest in Austin, Woz U and DCEH’s Art Institutes announced “a new partnership that serves as the intersection of technology and creativity in education.” According to a press release, “Through this partnership, The Art Institutes will provide Woz U’s tech-based curriculum in immersive ‘boot camp’ formats that enable students to learn the skills required to enter a technology-based career in a short amount of time. They are launching with the software developer program at select Art Institutes schools starting in June 2018 with additional programs and locations to be rolled out later this year.”

All of these ties suggest that people and companies connected to Brent Richardson stand to make money if DCEH can figure out a way to leverage the infrastructure of non-profit DCEH to direct students and resources to his for-profit entities, including the unaccredited Woz U bootcamp. So this gets us back to possibly why Richardson lost his cool when his staff of former EDMC workers in Pittsburgh explained all the legal and operational barriers to the proposed arrangement.

DCEH executives had floated a plan where Woz U programs and instructors would operate out of Art Institutes ground campuses, alongside existing Ai programs, and allow students to earn Ai’s college credits through those programs. But compliance staff said that wouldn’t fly legally, because the Woz U programs lacked accreditation. So the execs came back with a different tack: Woz U would operate out of Ai campuses as separate programs. But that approach, too, raised concerns: if these were Woz U students, for example, how would Ai address liability and security issues?

Worse, management also implied that celebrity-endorsed Woz U programs situated at Art Institutes schools could attract students and essentially serve as a lead generator for other for-profit programs. If students couldn’t afford Woz U, which, because it’s unaccredited, is ineligible for federal student grants and loans, perhaps they could be directed to for-profit SCI, which can receive federal aid.

According to DCEH staff members, Woz U was just a name, with Richardson grafting existing bootcamp curriculum created by Exeter onto the famous name of Wozniak, who was recruited to the effort. In that respect, Woz U is like a Trump hotel, or Trump University — a well-known name and likeness purchased for fees or an ownership share.

At this point, it’s unclear how Richardson plans to move ahead with the partnership between the two institutions, non-profit DCEH and for-profit Woz U, each of which he’s running. But despite the various roadblocks, the schools continue to promote the arrangement online and elsewhere.

Where staffers suggested DCEH management might be headed was to keep reaping federal student aid from the accredited non-profit Ai programs, perhaps paying some of that cash to Richardson-controlled entities like Exeter, and perhaps Richardson’s father’s lead generation business, to provide content and services. Other revenues might ultimately be invested in Woz U., which itself could eventually be eligible for federal dollars, if lobbyists for the growing bootcamp industry have their way with Congress and the DeVos Education Department.

Misleading students over accreditation

Beyond concerns that Richardson may be planning to exploit his position at the non-profit DCEH to benefit for-profit companies tied to him and his family, there are issues regarding the new enterprise’s handling of its legal obligations — decisions spearheaded by Richardson and by Shelly Murphy, DCEH’s chief regulatory officer, who, as noted, also works for Richardson’s for-profit ventures.

The first set of issues concern the accreditation status of some DCEH schools.

The accreditor Higher Learning Commission (HLC) took action, effective January 20, 2018, to change the status of two DCEH schools, the Illinois Institute of Art (with campuses in Chicago and Schaumburg, Illinois, and Novi, Michigan) and Denver-based Art Institute of Colorado, from “Accredited” to “Candidate.” The change in status was pegged to the date that DCEH took over the schools from EDMC. HLC explained in its disclosure that it was monitoring “the potential for the institutions to continue to ensure a quality education to students after the change of ownership took place.”

HLC explained the current status of the two Art Institutes schools as follows:  “During candidacy status, an institution is not accredited but holds a recognized status with HLC indicating the institution meets the standards for candidacy. The institution remains eligible to become accredited again….”  Under a section entitled, “What This Means for Students,” HLC writes, “Students taking classes or graduating during the candidacy period should know that their courses or degrees are not accredited by HLC and may not be accepted in transfer to other colleges and universities or recognized by prospective employers…. HLC requires that the Institutes provide proper advisement and accommodations to students in light of this action, which may include, if necessary, assisting students with financial accommodations or transfer arrangements if requested.” HLC further ordered DCEH to submit quarterly financial reports and to receive two campus visits from the accreditor over 18 months. HLC concluded, “If at the time of the visits, the Institutes demonstrate compliance with HLC standards, accreditation will be reinstated by the HLC Board.”

The candidacy status, some believe, kept these Art Institute schools eligible to receive federal student aid. Nevertheless, the HLC notice made clear that the schools are presently “not accredited” and that they are required to explain that fact to students.

Remarkably, then, the Art Institutes web page addressing accreditation says as to both the Illinois and Colorado campuses that each school “is in transition during a change of ownership. We remain accredited as a candidate school seeking accreditation under new ownership and our new non-profit status” (emphasis added).

Inside a For-Profit College Conversion: Lucrative Ties, Troubling Actions

The distinction, which the DCEH notice seems to blur, is important for students. As a DCEH employee told me. “These students don’t know that they just graduated from an unaccredited school. They have no idea. They don’t know they may not be eligible for jobs.” The employees say that DCEH is not directing campuses to tell graduates and current students about the unaccredited statuses of their schools.

While HLC has placed the Illinois and Colorado schools in candidate status, another accreditor, the Middle States Commission on Higher Education has put a different DCEH school, the Art Institute of Pittsburgh, which includes the school’s extensive online programs, on probation. Middle States had initially rejected the sale to DCEH in June 2017, citing “insufficient information and evidence conducive to Commission review.” When it acted in February 2018 to put Ai Pittsburgh on probation, Middle States gave the following reasons: “insufficient evidence that the institution is currently in compliance with Standard II (Integrity), Requirement of Affiliation 14 (The institution and its governing body/bodies make freely available to the Commission accurate, fair, and complete information on all aspects of the institution and its operations; the governing body/bodies ensure that the institution describes itself in comparable and consistent terms to all of its accrediting and regulatory agencies, communicates any changes in accredited status, and agrees to disclose information required by the Commission to carry out its accrediting responsibilities); and the Related Entities Policy (documentation that the institution and its related entities comply with Commission standards and policies).”

Among the requirements that Middle States has now imposed on the school is a report demonstrating, among other things, that the school “has avoided conflicts of interest in all activities and among all constituents….”

DCEH staffers say the company ran afoul of Middle States by making misleading statements regarding its efforts to find alternative accreditation for campuses accredited by the accreditor ACICS, whose recognition as an eligible accreditor had been withdrawn by the Department of Education. When Middle States asked if the company was seeking alternative accreditation for those schools, Ai said no, when in fact, as DCEH management knew, it was seeking to be accepted by another accreditor, Western Association of Schools and Colleges, the accreditor of DCEH’s Argosy University.

Ending compliance with the gainful employment rule

One more concern raised by DCEH staff with whom I spoke is that DCEH has failed to meet its obligations under the Department of Education’s gainful employment rule.

As noted, numerous EDMC-DCEH programs had flunked the gainful employment test — comparing the incomes of graduates with their debt loads — based on data released by the Department of Education in January 2017. Under the regulation, schools must post on their websites warning notices of these failing grades. Schools that flunk gainful employment two out of three consecutive years are supposed to lose eligibility for federal aid, but DeVos is on the verge of deleting that penalty; still, the warnings could play in role in deterring students from enrolling.

Here’s the rub, though: The gainful employment rule applies to all programs at for-profit schools. But it applies only to short-term certificate programs at non-profit schools. So, DCEH management decided that, as a non-profit, it no longer needed to tell students about many of these failing grades.

But there’s one more complication: Although DCEH was clearly a non-profit institution, and the Department of Education gave tentative approval last September (UPDATE 10-18-18: Here, finally, is the September 2017 letter from the Department to DCEH providing the tentative approval), the Department appears to have not, at least not yet, given its final approval for conversion to non-profit status for purposes of its obligations to the Department. (This was one of the matters I hoped to clarify by reaching out to the Department of Education.) Yet as of early April DCEH has taken down from its website the gainful employment warnings to students. DCEH staff say the company’s management made that decision after being warned by staff that it was not proper.

Management also have complained to staff that DCEH, because it is a new entity, should no longer be bound by the Justice Department-EDMC settlement agreement, which requires oversight by an outside monitor, lawyer Thomas Perrelli — even though DCEH agreed in its purchase agreement that it would be bound.


One staff member told me that the DCEH leadership under Brent Richardson “embody the stereotype of all the negative things in our industry.” This staff member said the team at the Los Angeles Dream Center “are good people” who “had no idea what they were getting into…. They don’t have a clue.” The staff member predicted that the Richardson team would leave the Dream Center “holding the bag” for DCEH’s abuses.

Will Betsy DeVos’s Education Department ignore all these issues and blithely approve the new DCEH chain of schools as another genuine non-profit, freed of key accountability measures that apply only to for-profit schools? Given DeVos’s track record in office, and the collection of ex-for-profit college executives who staff her, the answer may well be yes. But as with the other new faux non-profits, or covert for-profits — CollegeAmerica, Everest, Grand Canyon, Purdue Global, and the rest — the public and especially prospective students should be asking hard questions about whether the schools are run for the benefit of students or instead to enrich the people who ran those same schools as predatory for-profit colleges.

The DCEH website has a written message from Richardson, focused on the school’s mission. It concludes, “Please take a moment to watch this Dream Center video and see why we are so excited and honored to be part of this organization.” But the video posted just below that message (above a video from the Dream Center’s Pastor Matthew), instead, oddly, is directed not at the public or students but at the DCEH staff, as if it has been posted there by mistake.

Staring into the camera, Richardson sizes up what needs to get done at DCEH: “First of all, we have to become much more, uh, entrepreneurial, we have to be less bureaucratic, we have to get things done quicker. Many of the things we are trying to do take months and months, and we just can’t continue to do that. Secondly, we have to have less meetings. We have planning meetings to have meetings to have meetings. We need to get more work done in a quicker period of time.” He exhorts the staff to “get on board and work with us to build this business,” before concluding “thank you and have a good week.”

UPDATE 06-01-18: DCEH CEO Brent Richardson emailed staff this morning, saying that this article and a follow-up post appear to be “politically motivated,” but acknowledging “I held a prior equity stake in Woz U before the change in ownership between EDMC and DCEH. Currently, I serve on the senior management team at Woz U and in an advisory capacity at SCI.” Richardson added, “The trend in nonprofits (such as The Dream Center) expanding into education is a good change in that it allows DCEH to offer students accessible, affordable, relevant, and purposeful education. However, as with any large paradigm shift, it takes time to gain comfort in moving forward.”

UPDATE 06-19-18: The Arts Institutes have now updated their accreditation page to remove the false statements that the Illinois and Colorado campuses “remain accredited.”  The change was reported today by the Pittsburgh Post-Gazette, which also notes that the schools’ catalogues online still include the false statement.

UPDATE 02-23-21: I just received some documents released by the Department of Education under the Freedom of Information Act, and one shows that, the day after this article was published, DCEH’s Shelly Murphy sent the following email to Betsy DeVos’s chief of staff Josh Venable:

Inside a For-Profit College Conversion: Lucrative Ties, Troubling Actions


UPDATE 07-02-21:

A report released June 29, 2021, by the Department of Education’s Office of Inspector General found that on May 3, 2018, about two weeks before we published this story, the Department sent letters to the Art Institute of Colorado and the Illinois Institute of Art that stated that the schools’ candidacy status with HLC meant that, under Department regulations, the two schools were no longer eligible to receive federal aid as for-profit schools. Under the regulations, non-profit schools may be eligible to receive federal aid in these circumstances, but for-profit schools are not, and the Department had not approved the schools’ non-profit conversion. However, the Department in the letters declared it was not only granting the two schools temporary nonprofit status, but doing so retroactive to January 20, 2018 — apparently unprecedented actions by the Department. Had the Department or DCEH responded to our requests for comment and informed us of this letter, our reporting would have reflected this development. But the Department’s questionable May 3 action, even if accepted as valid, did not cure the misleading statements that had been posted for months on the schools’ websites regarding their accreditation status.