May 7, 2024

Biden Debt Relief For Ripped-Off Art Institutes Students Is A Big Step. More Is Needed.

Biden Debt Relief For Ripped-Off Art Institutes Students Is A Big Step. More Is Needed.

The U.S. Department of Education announced last week that it has approved more than $6.1 billion in automatic student loan debt cancellation for about 317,000 borrowers who attended the for-profit college chain The Art Institutes between January 2004 and October 2017.  

“This institution falsified data, knowingly misled students, and cheated borrowers into taking on mountains of debt without leading to promising career prospects at the end of their studies,” President Biden said in a statement.

This latest in a string of efforts by the Biden administration to provide broad debt relief for former students victimized by predatory colleges is a long-overdue and very welcome step, because for decades, before all of its campuses finally closed last September, the Art Institutes told falsehoods to peddle over-priced programs that left thousands of people deep in debt and without the careers they had sought.

There were, in fact, many outstanding instructors at the Art Institute schools, particularly before a 2006 private equity takeover of the schools’ parent company, Education Management Corp. (EDMC), by Goldman Sachs and Leeds Equity Partners, but the school’s steep tuition and relentless drive to pack classes with students, regardless of whether the programs were strong enough to help them, ruined the financial futures of a generation of veterans, single parents, and others.

Although the Art Institutes’ owners and top executives are the worst villains in this story — and should be forced to pay back their ill-gotten gains — the federal government also bears responsibility and thus an obligation to offer redress now. For one of the most reliable ways that Art Institutes recruiters could persuade students to enroll, in addition to making false statements about job placement rates and likely starting salaries, was by stressing that their campuses were “fully accredited” by agencies approved by the Department of Education. Such assurances conveyed that Uncle Sam had placed his seal of approval on the schools. The Department’s failure over decades to ensure that the schools’ various accreditors — ACICS, SACS, Middle States, Higher Learning Commission — actually verified ethical conduct and educational quality at the schools helps explain why the scam, and scams at other schools, have continued for so long. 

The automatic debt cancellation granted last week to a large cohort of former Art Institutes students is far better relief than the Biden administration has recently given to ex-students of other predatory schools, like the still-open Ashford University (now called UAGC) and University of Phoenix, where debt cancellation was offered only to borrowers who attended during particular periods when the schools engaged in misconduct, and provided only to those borrowers who were paying close attention and had submitted an application for relief. 

But the Department’s action last week, while broad and laudable, still leaves much to be done to right the wrongs suffered by students who attended the Art Institutes and those who were enrolled at other schools operated by EDMC.

The documented abuses at EDMC schools

EDMC’s deceptive marketing and recruiting, and sky-high costs, under owners including Manhattan private equity man Jeffrey Leeds and CEOs including Todd Nelson, have been documented over decades and extended to all the schools operated by the company — not only the Art Institutes, but also the now-shuttered Argosy University, Brown Mackie College, and Western State University College of Law, as well as South University, which is still operating under different owners. 

In 2015, the U.S. Justice Department and state attorneys general reached a $95 million settlement with EDMC over charges that the company deceived students and defrauded the Department of Education by violating recruiting rules. At the time, U.S. Attorney General Loretta Lynch tagged EDMC and the Art Institutes as “a high pressure recruitment mill.” 

The Department’s announcement last week included some fresh revelations about EDMC’s deceptions, included that one of the school’s Florida Art Institutes campuses apparently included the huge annual earnings of tennis sensation Serena Williams, who once took a few fashion classes at the school, in its projections of salaries for graduates, in order, as one former employee said, to “skew the statistics and overinflate potential program salaries.” 

Much remaining debt for Art Institutes and other EDMC ex-students

But however important this step by the Department of Education is, much more needs to be done, including: 

— Many Art Institutes were pushed by school operators into taking out, in addition to their federal loans, high-interest private loans as the only way they could afford enrolling and staying in their over-priced programs. Last week’s announcement did nothing to address that debt.  The Consumer Financial Protection Bureau, Federal Trade Commission, Department of Education, state attorneys general and others should be working to cancel those unfair debts as well, including by putting more pressure on the big student loan company Navient.

In a statement issued last week, the Project on Predatory Student Lending, which represents students abused by for-profit schools, explained well the private loan dimension to the EDMC scam: “EDMC … partnered with Sallie Mae (now known as Navient), to convince AI borrowers to take out private student loans to augment their federal student loans. These private loans enabled EDMC to maintain access to federal student aid dollars, and Navient benefited by being a preferred lender of federally-guaranteed student loans for AI students. Both EDMC and Navient knew students would not be able to repay these subprime loans and had a side agreement that protected Navient against losses. These private loans are not resolved by today’s federal action and will need to be addressed separately with Navient to ensure AI students get full relief.” 

Eileen Connor, the president of the Project on Predatory Student Lending, called on Navient “to recognize that the private student loans it made to AI students are also not enforceable and should be cancelled immediately.” 

It’s also an issue, although one unlikely to ever be addressed, that former Art Institutes students are not going to get refunds for the private loan payments, at least some federal loan payments, and out-of-pocket cash payments, they already made — for some students, tens of thousands of dollars they probably will never get back.

Former students of other EDMC-owned schools, and of the various schools after EDMC sold them, also deserve broader, automatic debt relief. Some students from Argosy University may have received “closed-school discharges” of their loans, and students at all those schools have had opportunity to seek borrower relief, including through the settlement of the Sweet v. Cardona lawsuit involving thousands of students from numerous schools. But that’s not enough.

South University remains in operation, having been sold, with Argosy and some Art Institutes campuses, to the troubling Dream Center Education Holdings operation, and then re-sold to the shady Education Principle Foundation, which is tied to a for-profit firm that continues to make money servicing the school. These changes in ownership did not end the predatory practices at the former EDMC schools — and nor, as Senator Dick Durbin (D-IL) emphasized in a Senate floor speech last week, did they end the struggles for students.

(The Dream Center leaders — the Richardson brothers — have been facing legal actions from students over the mess they created with the Art Institutes and other former EDMC schools. Last week the Richardsons added to the litigation pile by suing some of their insurance companies in the matter; in their complaint they reaffirm prior allegations that EDMC executives had misrepresented the schools’ financing when negotiating the sale.)

— Some Art Institutes students, including courageous Army veteran Mike DiGiacomo, were fleeced by more than one predatory college. In DiGiacomo’s case, he was also ripped off by, and still owes debt from attending, now-defunct Katharine Gibbs College, which was later acquired by what is now called Perdoceo Education Corp., whose own abuses should have disqualified it long ago from federal aid programs, and whose victims are also entitled to loan relief.

The struggles of one Army veteran

DiGiacomo, whose struggles with predatory schools and student loans I have chronicled before, spoke with me last week. He is still, as a technical matter at least, deep in student loan debt. Last week’s announcement by the Department of Education actually got him nothing. When the Department, during the Obama administration, initially started accepting “borrower defense” applications, allowing former students to assert that they were ripped off and deserved loan cancellation, the online form allowed borrowers to claim relief from only one school. DiGiacomo opted to target his Art Institutes debt, rather than the smaller amount he still owed from attending Gibbs. Later, DiGiacomo says, the Department’s website allowed for claims regarding multiple schools, but a technical glitch prevented his Gibbs application from going through.

The relief on DiGiacomo’s Art Institutes debt was finally granted last year as part of the settlement of the Sweet litigation. So, when the Department cancelled Art Institutes debt last week, DiGiacomo got no new relief, and he still has his loans from Gibbs. He also has no expectation of getting back thousands of dollars that were garnished from his paychecks to cover student loan debts.

For DiGiacomo, there is “still anger” over the delays and the continued debt. After all the revelations about EDMC from the law enforcement actions and media reports, he says, “you would think it would be simple open and shut, people provided overwhelming evidence, and still there isn’t full relief.”

Noting that EDMC and its executives, and big loan companies, have paid little penalty compared with the billions they got from taxpayer and student dollars, he says, “it feels like the robbers get away with the money.”

DiGiacomo, who wanted to be a video game designer and was misled by EDMC’s promises of job pipelines to big tech companies, left the Art Institutes campus in Boston — called the New England Institute of Art — in 2006 without a degree, because he couldn’t find a co-signer for one more private loan that the school was leaning on him to take out. 

About being scammed by two big for-profit college chains, and facing two decades of debt thereafter, and watching fellow veterans suffer intensely under debt loans reaching into six figures, Mike says, “I think about it every day.”

Mike DiGiacomo’s career dreams were crushed, and his finances wrecked, by a cruel, cynical education industrial complex.

“It makes me not trust the system,” he says. “Honestly I don’t want my kids to go to college and go through this. My daughter has talked about doing animation” — she’s 11 year old — “and I felt awful discouraging her. I tried and failed, and you won’t support yourself, and it’s not really a good future.”