July 20, 2018

Leaked Recording: Dream Center Exec Blames Durbin, EDMC, Accreditors (But Not DeVos)

In a meeting with faculty and staff of the soon-to-close Chicago campus of the Illinois Art Institute — a career school that has for decades offered programs in design, fashion, marketing, culinary, film, animation, and technology — John Crowley, a top official of the school’s owner, blamed the prior corporate ownership, the school’s accreditor, state attorneys general, and Senator Dick Durbin (D-IL) for the chaos engulfing a national chain of schools.

In the meeting, held July 11, Crowley, chief operating officer of non-profit Dream Center Education Holdings (DCEH), which acquired the Art Institutes (Ai), Argosy University, and South University chains from crumbling for-profit Education Management Corp. (EDMC) for $60 million last year, told the approximately 50 teachers and staff assembled that EDMC had mismanaged the schools and misled DCEH in the deal, and that DCEH was considering legal action. He said that Senator Durbin, who wrote last month to the Chicago school’s accreditor, asserting that DCEH was failing to inform students that the campus had lost its accreditation status, was “showboating” and “hates for-profit education.”

Crowley said his operation was getting help from one source: the Betsy DeVos-led U.S. Department of Education, which he claimed was pushing the accreditor to reinstate Ai Chicago and other suspended campuses. He said that DCEH’s abrupt backtracking on its notifications that Chicago and 29 other campuses would soon be formally closing was the result of a request from the DeVos Department. But he complained that the Department was acting too slowly, “like a glacier.”

Republic Report obtained a recording of the 75-minute meeting. To his credit, Crowley — the company’s number two official — showed up in person to face the campus staff, and also met for hours with students in a separate session, and he seemed to offer candid, revealing responses to many questions. But he also seemed to blame everyone but DCEH for the operation’s woes, in the face of evidence that DCEH’s own self-interested, concealed designs, coupled with serious mismanagement, are essential drivers of the current crisis.

DCEH’s spokesperson Anne Dean, who had not replied to requests for comments on my previous articles, did respond to my email inquiry about this article — which included extensive excerpts from Crowley’s remarks — by saying that DCEH CEO Brent Richardson wanted to meet with me in person at the Los Angeles headquarters of the Dream Center, the faith-oriented charitable parent organization of DCEH, and asked me to delay publication until after we met. I said I was happy to meet Richardson there, but did not plan to hold off on publishing pending a trip to Los Angeles. (I’m based in DC.) I asked Dean why Richardson needed to meet in person rather than talking by phone or video chat. Dean said she would check. Melissa Esbenshade, DCEH’s chief marketing officer, followed up, calling me to say that DCEH believed a visit to the Dream Center would help me to understand the aims of the enterprise. Esbenshade said, politely, that if I planned to publish before an LA meeting, then DCEH had no comment for my article, and the offer to meet with Richardson would likely be withdrawn.

The DCEH crisis exploded around July 2, when the company announced that it would cease student enrollments at some 30 of its Arts Institutes, Argosy, and South campuses — days after leaks out of various state regulators revealed that DCEH had informed some states that those campuses would in fact be closing by December 31. Since then, the whole system, which had around 60,000 students nationwide until recently, has been in turmoil.

Republic Report in May had published two investigative articles raising concerns that the former EDMC schools have been run in a troubling manner since DCEH had taken over, with clear conflicts of interest — DCEH schools were seemingly being leveraged to provide revenue to for-profit companies linked to Richardson, his relatives, and long-time associates — plus serious legal compliance questions and concerns about the company accelerating predatory recruiting practices.

In the Chicago meeting, Crowley gave a brief opening statement and then took questions from teachers and staff members, all of them concerned about their jobs and the educations of their students. Although the Art Institutes was operated in a predatory fashion by EDMC — with deceptive recruiting and sky-high prices — the schools have a long tradition of stronger instruction than at many of the large for-profit chains, and many of the campus personnel, I know from personal experience, are fine, talented people.

Crowley was, with Brent Richardson, one of the drivers of the 2003 deal that transformed small non-profit Grand Canyon University into a for-profit college giant. Grand Canyon, which Richardson departed last year, is now converting back to non-profit status in a highly questionable deal, as the DeVos Department is allowing a series of such troubling restructurings to go forward.

It’s clear from its recent actions and statements that DCEH is focused on shutting down physical campus instruction — with its expensive requirements for in-person instruction, equipment, and buildings — and prioritizing cheaper, and thus more lucrative, online education. As Crowley told the assembled Chicago staff, “We have a huge emphasis for moving online.”

Other big predatory for-profit college chains — Kaplan, Bridgepoint — have moved to rapidly dump their remaining physical campuses, as they have, like DCEH and Grand Canyon, converted from for-profit to non-profit — a parallel shift that allows operators to escape the additional regulation imposed on for-profit schools, as well as the stigma that their own bad behavior has created. But although online education may work for some programs, and for highly motivated students, many of the students recruited by the Art Institutes — low-income, first in their family to go college — have struggled. Many of the programs have low graduation rates, and numerous Ai and other EDMC programs flunked the first test of the Obama administration’s gainful employment rule, which measures whether program graduates earn enough to pay down their student loans.

With this troubling shift to online-only programs, DCEH has laid out several options for students on closing campuses, including moving to online study but also transferring to one of the 13 Ai campuses (out of 28) that hasn’t stopped enrolling new students. But when one teacher told Crowley that some students were asking whether moving to, say, the Ai Atlanta campus, would permit them to complete studies there, Crowley wasn’t reassuring. “We are actively trying to keep Atlanta open,” he said, but “there’s no guarantees.” (Another option presented to students, a $5000 “tuition grant” to study at “partner institutions” cooperating with DCEH, coercively and unconscionably requires students to sign away their rights to ever make a legal claim against DCEH for anything.)

The Chicago staff in attendance also were justly concerned that the campus’s accreditor — the Higher Learning Commission (HLC) — had placed the campus on “candidate” status following the change in ownership, meaning that, for now, the school is not accredited. They were equally concerned that, as first reported by Republic Report and later raised by the Pittsburgh Post-Gazette and then Senator Durbin, the school was indicating on its website that “we remain accredited” and not telling students that they were attending or enrolling in an unaccredited school.

Another accreditor, the Middle States Commission on Higher Education had earlier this year put a different DCEH school, the Art Institute of Pittsburgh, on probation, citing numerous concerns about the school’s operation and disclosures. This week, Middle States issued a grave direction to both Pittsburgh and Ai Philadelphia, ordering each campus to show cause by August 31 why accreditation should not be withdrawn. Pittsburgh losing accreditation would be a severe, perhaps fatal, blow to DCEH, because the school’s online division is run out of there. Among other things, Middle States directs DCEH to report back on “evidence … of the breadth of the relationships involving the related entities, Dream Center Foundation and Dream Center Education Holdings (DCEH), including the identification of contractual relationships, employment, and family or financial interests that could pose or be perceived as conflicts of interest” (suggesting that maybe somebody might be reading Republic Report).

Crowley sought to allay the concerns about accreditation by asserting that the DeVos Department of Education is moving to fix the problem. “We have met with DoE,” he said. “The DoE is working with HLC to get this accreditation issue gone. They went so far as to change a regulation at DoE to make it easy for HLC to help us…. There’s a real good shot that everything’s gonna be fine.”

It’s unclear to what regulation Crowley referred. The Department of Education did not respond to my request for comment on Crowley’s remarks at the meeting. [UPDATE 09-05-18:  I’ve been alerted that on July 25, 2018, the Department sent a letter to all accreditors stating that the Department was retracting a 2017 guidance letter and now would permit retroactive application of a date of accreditation. This apparently is what Crowley was referencing when he told the Chicago faculty and staff that the Department “went so far as to change a regulation at DoE to make it easy for HLC to help us.” The issuance of the new Department policy means that if HLC decided to reinstate the accreditation of the Ai campuses and made the reinstatement retroactive, the Department would honor that, and the students would be considered to have attended an accredited institution for purposes of federal law.]

Crowley said the Education Department “have been working with us really well. They have been unbelievably cooperative. A woman named, uh, Diane Jones who is literally undersecretary of education called all the accrediting bodies together and said, listen you guys have to work with DCEH to accommodate these students because everybody thinks this is a business deal; this is about getting the students accommodated.”

Diane Auer Jones is indeed DeVos’s acting undersecretary of education and key policymaker on higher education issues; she’s also, unfortunately, a former top executive and lobbyist for another predatory for-profit college chain, Career Education Corporation.

When a Chicago staffer asked Crowley if the HLC action to suspend accreditation was “political,” Crowley offered a broader response about perceived foes: “My answer is yes. we’re still trying to shake off the ‘for-profit.’ There were 22 senators who said this deal shouldn’t happen. There are 48 AGs [state attorneys general] that make us say things on the phone right now that are ridiculous. There were 2500 calling rules; so we couldn’t call students after three o’clock….and then EDMC was trying to get rid of the company so they didn’t fix anything. They kept building on crap… It’s all unraveling, and we just have to take it apart.”

Crowley further complained that DCEH schools are under the expensive watch of a legal monitor, resulting from EDMC’s $200 million settlement of recruiting fraud charges pursued by the U.S. Justice Department and state attorneys general. “We have to pay a guy a million dollars a year because he reports to the AG,” he said. “This whole compliance thing is out of hand.”

Crowley, although now at the helm of at least a nominally non-profit school, then slipped into a familiar for-profit college industry rap about how the sector is unfairly maligned: “There are for-profit schools in this country that are great… but we have this stigma about them. Has anybody ever looked at state colleges and how they spend money and fly around in private jets? We don’t do that. We try to run it as efficiently as possible.”

“Today,” Crowley said, returning to the matter of HLC accreditation, “we’re on probation status; it could end tomorrow. Or they could leave us on there because they think that Trump’s gonna lose, or whatever.” He seemed to be nodding to the DeVos/Trump reversal of Obama-era efforts to hold bad-acting colleges accountable — DeVos has essentially turned over policy to the for-profit college industry — and the possibility that a new president could reverse policy in favor of students and taxpayers once again in 2021.

But Crowley said DCEH was reluctant to sue HLC because that “creates another problem … we want to work with them.”

Crowley dismissed Senator Durbin’s letter — which indicated that DCEH was caught red-handed misrepresenting its HLC accreditation status — as “a he-said, she-said … there’s a little showboating going on with politicians… Senator Durbin hates for-profit education, just hates it.”

Senator Durbin provided a statement to Republic Report: “There’s nothing political about expecting an institution of higher education that receives millions in federal student aid not to mislead its students. If Dream Center can’t meet those expectations, they shouldn’t be in the higher education business and their institutions shouldn’t be accredited.” Regarding Crowley’s statements on actions by the DeVos team, Durbin said, “Any pressure from the Department of Education on HLC to reinstate accreditation in the face of continuing concerns about Dream Center’s management and, now, its failure to provide timely and accurate information to students about its campus closures would be extremely troubling.”

HLC officials conducted a campus visit at Ai Chicago earlier this week — days after Crowley’s meetings there.

Asked in the staff meeting if there was a problem with the DeVos Department formally approving Ai and the other DCEH schools for final recognition as nonprofits, which would somewhat ease the schools’ regulatory burden, and has indeed been delayed by the Department, to the frustration of DCEH management, Crowley said no, but added, cryptically, “Now there may be, uh, another action that happens not at the school level but at the DCEH level, but it’s a real technical legal thing, but we just started exploring.” No one asked what he meant.

One Ai employee pressed Crowley as to why DCEH hadn’t informed students about the lapse in accreditation at the Chicago campus. Crowley at first evaded, saying that DCEH was “blindsided” by the HLC action and has been “arguing with them.”  The employee persisted, saying that it was also the students who were blindsided “and now a lot of them are freaking out because they don’t know what to do.”  Crowley said the decision was “a question of judgment. We didn’t think it was a problem at the time, and we have been operating under the assumption that were going to be accredited or we wouldn’t have done this deal.” In which case, he hastened to add, as if to tell the staff they should be grateful, Ai Illinois “would have been closed in January.”

“Unfortunately,” Crowley continued, “the business rolls into it because you can’t continue to lose money. And even if you’re a non-profit, where does the money come from? And there’s no way to raise money as a non-profit, other than donations… so we’re in a bit of a quagmire.”

DCEH had sent letters to faculty and staff at numerous campuses on June 29 informing people that they had been laid off and their campuses were closing, as the company had similarly notified various state regulators. But then DCEH notified recipients that the letters had been withdrawn and, instead of admitting the campuses were closing December 31, said publicly and in internal talking points only that the campuses were halting enrollments. Asked by Chicago staff about the shift, Crowley stated that it was the DeVos Department that “asked us to recall” the termination letters, because “they didn’t want us to say we’re closing campuses… We have had to tell the DoE we’ll be here ’til December,” and so the schools are saying they are “teaching out programs” — allowing current students to complete their programs. But when a staffer asked Crowley whether Ai Chicago could commit to teach out, or complete, programs for students over, say two years, Crowley said no: On-campus instruction at the school will shut down December 31.

If Crowley’s assertion is true — that the DeVos Department is behind DCEH’s refusal to confirm actual campus closings — one could see the government’s motivation: It doesn’t want the expense and effort, at least now, of issuing “closed school discharge” loan cancellations to DCEH students across the country. But it would mean that the DeVos Department is not just aiding, but driving, a central deception in this drama, one that fundamentally misinforms the students.

Crowley insisted, however, that the closing of DCEH campuses was not comparable to the 2016 complete shutdown of predatory ITT Tech (a school chain that DCEH had tried to buy at the time) — a collapse that did allow many students to receive closed school discharges and gave rise to claims by other students that their loans should be cancelled.  “We don’t think loan forgiveness applies,” Crowley said, because “you guys gave value to the students”

Summarizing the DeVos Department’s handling of the DCEH turmoil, Crowley said that, “The good news is DoE is helping us with things like HLC. The bad news is they move like a glacier.”

Crowley placed much of the blame for the whole mess on the seller, EDMC.  He said that DCEH had “walked away” from negotiations with EDMC last September, but then EDMC “brought us back and certified these documents, so now [DCEH believed] there’s $70 million in cash flow over here.” But he said DCEH subsequently concluded that the $70 million was a mirage.

When a Chicago staffer then asked, so it’s your fault, for weak due diligence? Crowley responded, “Why is it my fault?”

Crowley said DCEH would fight back against EDMC: “There’s going to be litigation. There’s going to be charges. We feel like we didn’t get a square deal.” He referred those in the room to a recent Wall Street Journal article which, he said, accurately, was about former EDMC executives “leaving with some cash.”

On June 29 EDMC filed for bankruptcy, which Crowley acknowledged “makes our litigation very difficult, but we are getting in line on that.”

Crowley also blamed EDMC for charging students too much: “One of the things that we are fixing is tuition, right? It  costs 80,000 dollars to go here, 90,000 bucks. We’re bringing it down to 60 — at the remaining schools, because $80,000 is ridiculous… to charge $83,000 for a bachelor’s degree, and I can go down and get gen ed [general education] credits for a hundred bucks, you know, I wonder why our [student] population has been declining.” Crowley was right.

Asked by an Ai teacher why the school had never made investments in infrastructure and equipment to compete with non-profits like Chicago’s Columbia College and DePaul University, Crowley complained that total capital investment across all 60 campuses last year by EDMC was less than $15 million. “That’s ridiculous,” he said, and he was right again.

“But more than anything we need new product, right?” Crowley asserted. “You haven’t had new programs in five years,” he said of Ai. He suggested that, under EDMC, Ai, mostly an arts school, as its name indicates, should have added “a software engineering program or some other program that brings new life.”

But asked by staffers what DCEH had been doing or planning since it took over to increase Ai’s declining enrollments and revenues, Crowley’s responses seemed pretty weak. He said DCEH had “changed the way we market” and added new classes. Reminded of EDMC’s shameful underspending on capital investments, Crowley offered, “We’re putting in a CRM system to track students.” That’s Customer Relationship Management software, and it hardly seems a substitute for new audiovisual or culinary hardware, new spending on faculty, or a serious ground campus strategy. [UPDATE 09-18-18: DCEH posted a fancy internal video touting the new CRM system, which will be used for marketing, admissions, and tracking student progress.]

It looks to an outside observer that DCEH planned all along, or quickly decided, to close physical campuses and move to online-only, as the cheapest way to run their education programs while continuing to bring in millions in taxpayer-funded student grants and loans. (At its peak under EDMC, the schools were getting some $2.25 billion in revenue annually, about 80 percent of that in federal student aid.)

But Crowley claimed that, in fact, DCEH’s plans had gone awry: “It hasn’t worked and we ran out of time.” He offered a litany of current problems that included: “there’s a banker that wants to foreclose on us.” He said 2500 staff and 12,000 students were at the shuttering campuses, and “nobody wants to make this call, including me.”

Crowley said the Chicago campus had 800 students remaining, but a staffer replied that there were maybe 450 students still registered, a figure that led another meeting participant to exclaim “in the whole school?”

The students still left were expressing their concern and their determination to hold DCEH accountable. About 100 Ai Chicago students staged a protest outside the campus this week and highlighted, among other things, DCEH’s failure to inform students about the lapse in accreditation.

Anticipating the protests, an email to staff sent Thursday by Jennifer Ramey, the Ai Illinois campus president, expressed support for “our students’ First Amendment rights to freedom of expression” but also: stated, “Protestors are not allowed access to the building as this is private property” — an odd thing to assert with respect to protestors who are enrolled students; said the campus had “put in place additional security measures” including “[e]xtra security guards”; instructed staff, “If you are confronted by a protestor, look to de-escalate the situation: Don’t meet anger with hostility or engage in conversation”; and further wrote: “Members of the media are not allowed access to the building without a requested appointment. Should you encounter a member of the media, please direct them to security or the receptionist immediately.”

Another email from Ramey earlier the same day further cautioned staff against communicating with the media: “If you receive a media inquiry, please provide [DCEH spokesperson] Anne Dean’s contact information and immediately let me know of the request and the media outlet…. Dream Center Education Holdings (DCEH) Communications is the only authorized entity to provide any statement to the media…. No one is authorized to speak on behalf of the individual campus when addressing information pertaining to the location or its operations, which includes the decision to discontinue campus-based programs at certain locations.” In addition, “no employee should be engaging with students or alumni on social media or any public forum regarding the discontinuation of campus-based programs  but should, instead, be referring those with questions to the appropriate campus leader.”

Meanwhile, John Crowley seems to have compounded DCEH’s missteps with this one: Don’t unburden yourself in a room full of people you’ve just fired.

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On a related note, a self-styled “free-market” group called Consumer Action for a Strong Economy seems awfully motivated to repeatedly attack critics of these troubling conversions of predatory for-profit colleges into fake non-profits, most recently with an article in the Laura Ingraham-founded LifeZette, entitled, “Elitists Undermine Economic Opportunities for Millions of Regular Students.” The article charges that “liberal senators such as Richard Durbin (D-Ill.), Patty Murray (D-Wash.) Bernie Sanders (I-Vt.), and Elizabeth Warren (D-Mass.), with the support of activist cheerleaders such as Robert Shireman and David Halperin, are attempting to weaponize the IRS against a select group of private schools that have changed their status from for-profit to nonprofit.”

The best response came from @AryaHasJokes:

UPDATE 07-23-18 7:30 pm:

A July 19 lobbying disclosure form reveals that DCEH paid $90,000 in the last quarter to its new lobbyist, Barry Bennett of the DC firm Avenue Strategies. Who is Bennett? According to his firm’s website, he “served as Senior Adviser to the Trump Campaign” and before that “he managed the campaign of Dr. Ben Carson for President.” According to the form, DCEH is paying Bennett to lobby the Trump departments of Education, Labor, Veterans Affairs, and Housing and Urban Development, which, of course, is run by Dr. Ben Carson. Swampy.

UPDATE 07-24-18:

VIDEO: Higher Learning Commission meeting with students, faculty, staff at Ai Chicago. Definitely worth watching.

UPDATE 07-26-18:

Another DCEH/former EDMC school, Argosy University, suffered a setback from an accreditor. By letter dated July 18, WASC Senior College and University Commission formally notified Argosy that, at its meeting June 27-29, 2018, it decided to defer a decision on reaffirmation of accreditation.

The letter does not provide specifics as to WASC’s concerns, but notes some problem areas requiring action, including:

— “Conflict of Interest-Personnel, Structural Change Post Implementation Visit Report…. A plan to effect this action. The Commission finds that the institution’s argument in favor of this relationship does not rebut what the Commission considers not to be a good business practice.”

— “Conflict of Interest-Financing…. A plan for divestment. The Commission finds that the institution’s argument in favor of this arrangement is fitting in a for-profit environment, but not as part of a non-profit institution.”

— “Conflict of Interest-Professional Roles…. The plan for when Mr. [Randall] Barton will resign from one of the two roles”

— “Conflict of Interest-Financial Interests…. Complete the list of investments of all principals. The Commission finds its request for the investments of all principals to be appropriate.”

WASC directs Argosy to post the letter “in a readily accessible location on the Argosy University website and widely distributed throughout the institution” by a dated not specified. (The Argosy website at this point does not appear to include the letter, just this statement: “Institutional Accreditation: Argosy University is accredited by the WASC Senior College and University Commission….”)