Weeks into the spring semester, students at Argosy University, a chain of career schools stretching from Virginia to California, are still waiting for $13 million in federal financial aid, according to court documents.

The delay is the latest development in the ill-fated acquisition of Argosy, South University and Art Institutes campuses by Dream Center Education Holdings. The Los Angeles-based nonprofit organization has struggled for two years to transform the flagging for-profit colleges into thriving nonprofit schools. Dream Center has spent months trying to close and sell some campuses, but could not meet its financial obligations and in January entered into receivership -- a form of bankruptcy.

In light of those financial woes, the U.S. Education Department in January 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.

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And the $13 million remains unaccounted for.

"The Department is deeply concerned that the receiver and the institution are currently unable to fully account for the funds disbursed by the Department to pay student account balances,” Education Department spokeswoman Liz Hill said in an email. “This puts the institution in violation of our standards and puts the institution’s access [to federal student aid] in serious jeopardy.”

The Education Department said Friday it will cancel any federal debt students acquired to pay for the spring semester. But that will not help students who had hoped to use a portion of their aid to cover food, housing and transportation expenses. The department said it intends to contact eligible students and post further information on its website in coming days.

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The federal agency is not the only one inquiring about the missing $13 million. Art Institute students seeking a stake in the receivership petitioned the bankruptcy court to schedule an emergency hearing to address the financial aid funds. Although the motion was denied, a federal judge ordered the court-appointed receiver, Mark Dottore, to report the status of the stipends by Tuesday.

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“Right now, students who attended Dream Center schools are in the dark about what the schools are doing with their money, and how the receiver is going to make sure students’ interests are protected," said Eric Rothschild, an attorney at the National Student Legal Defense Network who is representing the students.

Last week’s legal filing included a Feb. 7 letter from Dottore that revealed the extent of the financial aid troubles. He wrote to Diane Auer Jones, a deputy undersecretary in the Education Department, asking the agency to ease the cash monitoring restrictions and release $13 million to cover the financial aid obligations.

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The Education Department had previously asked Dream Center to set aside money to cover federal student-aid liabilities if the organization ceases to operate. In recent months, the federal agency has allowed the nonprofit organization to use a portion of the money to wind down academic programs at campuses slated to close. The Education Department retained the majority of the funds, a slice of which the receiver would like to use to help students.

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Dottore told Jones that Dream Center had only $3.8 million to cover the cost of operations. The Cleveland-based attorney said the “dire cash situation” was born of agreements the organization struck with Studio Enterprise Manager to provide enrollment management, marketing and other operational services to the colleges. The deal, according to Dottore, gave Studio “substantial management fees” for little to no work, leaving Dream Center schools strapped for cash. Studio did not immediately respond to requests for comment.

Now, Dream Center lacks the money to pay the student stipends or complete the semester, Dottore told Jones.

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Hill said the department learned last week that several academic leaders at Argosy have been terminated, which she said calls into question “the integrity and academic quality” of the institution and its programs.

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“The non-payment of stipends and the termination of faculty are serious violations of Argosy’s participation obligation under Title IV programs, and if these issues are not resolved immediately, Argosy will no longer be entitled to participate,” Hill said.

Being kicked out of the federal student-aid programs, known as Title IV, would sound the death knell for Argosy. The largest college shutdowns in recent years, including the closure of ITT Technical Institute and Corinthian Colleges, were directly related to the loss of access to federal financial aid.

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Dream Center referred all questions to Dottore. His office said Dottore is working to locate the financial aid funds, which he suspects Argosy used to cover payroll and other expenses.

Argosy has 11 campuses where about 17,600 students are pursuing associate’s, bachelor’s and graduate degrees in fields such as psychology and education. The Arlington campus is home to 468 students, according to the State Council of Higher Education for Virginia.

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Sylvia Rosa-Casanova, director of private postsecondary education at the Virginia higher education council, said the state agency was first made aware of problems at Argosy last month and requested the school provide contact information for students in the event it closes. She said the council is monitoring the situation.

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The financial aid debacle, first reported by the Arizona Republic, is unfolding as Argosy is under threat of losing its accreditation. Accreditor WASC Senior College and University Commission issued a “show cause” letter, asking Argosy to prove it is worthy of accreditation as the financial condition of its parent company deteriorates. Receiving a show cause letter is the first step in the process of reviewing a school’s performance, but it could quickly accelerate if accreditors find evidence that warrants additional sanctions.

A similar accreditation threat set off a chain of events that led ITT Tech to shut down in 2016. The ensuing chaos, with students scrambling to transfer and the Education Department inundated with loan forgiveness requests, is exactly what the federal agency is trying to avoid with Argosy.

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“The Department is working with other institutions that might be able . . . to enable students to complete their programs,” Hill said. “Our first priority is ensuring that students experience as little disruption as possible and that they have a path forward to continue their programs.”

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Dream Center’s purchase of Argosy, South University and 31 Art Institutes campuses was met with skepticism from advocacy groups who derided the sale as a means to avoid regulations aimed at for-profit colleges. Turning the schools into nonprofit entities meant they were no longer 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.

Despite denying similar conversion requests from other for-profit operators, the Trump administration gave Dream Center its blessing.

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