Argosy University, a chain of career schools stretching from Virginia to California, will no longer have access to federal student loans and grants following the disappearance of $13 million in federal financial aid, the U.S. Education Department said Wednesday.
The agency had warned that the school could be kicked out of federal student-aid programs for failing to give students loan funds left over after their tuition was covered, known as credit balance refunds. Some Argosy students were counting on those dollars to pay for housing, transportation and food, but never received a dime or an explanation of what happened to the money.
“Nobody told us anything. Nobody knew anything,” said Susanna Smith, who is pursuing a master’s degree in mental health counseling at Argosy. “We trusted Argosy. We weren’t told anything about the money until the day after we couldn’t withdraw without financial repercussions. It was a planned theft."
Without the critical revenue from federal student loans and grants, there is little chance Argosy’s 22 campuses will remain open.
“I mean, we’ve seen this opera before,” said Trace Urdan, managing partner at Tyton Partners, an education advisory firm. Cutting off access to aid “will hasten the inevitable, but once again reveals how poor the controls are preceding this step.”
Court documents attribute the missing money to the financial unraveling of Dream Center Education Holdings, a nonprofit group that acquired Argosy, South University and Art Institute campuses in 2016. The Los Angeles company struggled to turn the for-profit colleges into thriving nonprofit schools, and spent months trying to close and sell campuses to meet financial obligations. When it fell short, Dream Center in January entered into receivership, a form of bankruptcy.
In a letter sent Wednesday to Dream Center Chairman Randall K. Barton and the court-appointed receiver, Mark Dottore, the Education Department said it released financial aid funds to cover the credit balance refunds before the company entered receivership. Weeks later, Dottore sent the agency a cash flow statement showing that Argosy used $4.2 million of the money to pay staff, $2.1 million to pay vendors and $1.7 million for other operational expenses.
“Significant funds were released by the department since mid-January, including after the receiver was appointed, which should have been used to pay the existing unpaid credit balances owed to students,” wrote Michael Frola, a senior official at the Education Department.
He added: “Argosy’s actions in failing to pay . . . credit balances is a severe breach of the required fiduciary standard of conduct to disburse the student’s . . . funds to them, and demonstrates a blatant disregard of the needs of its students.”
Frola documents chaotic events at Argosy locations that he said underscore the university’s financial irresponsibility. An Argosy campus in Phoenix ceased operation after being locked out of the premises. Meanwhile, Dottore fired Argosy’s chancellor, and nearly 100 faculty, academic support personnel and financial aid counselors, according to the letter. In some cases, professors were pulled out of class in the middle of teaching.
“These actions have resulted in substantial and irreparable damage to the academic integrity of Argosy, and accordingly violate the requirements of financial responsibility,” Frola said.
Dream Center, which referred questions to Dottore, had received provisional approval from the Trump administration to convert Argosy and the other for-profit colleges into nonprofit schools. Now, the Education Department is denying Dream Center’s application for Argosy, but not the other colleges.
“We are disappointed at the decision by the Department of Education today to deny Argosy University’s request for change of ownership,” Dottore, said in a statement. “We are working to determine the best path forward for students at this time.”
Argosy has until March 11 to dispute the Education Department’s findings.
The federal agency’s informal blessing of the conversion was met with skepticism from advocacy groups who derided the transformation 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. But the conversion was never finalized, and Dream Center’s deteriorating financial conditions gave the Education Department pause.
Still, the federal agency in January assisted Dream Center in brokering a controversial sale of South University and a group of Art Institute campuses to Education Principle Foundation. That transaction included an agreement for an arm of Education Principle, 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, placing Dream Center in a “dire cash situation.”
In a Feb. 7 letter to Diane Auer Jones, a deputy undersecretary in the Education Department, Dottore blamed the deal with Studio in part for Dream Center having only $3.8 million to cover the cost of operations. A week later, Sen. Richard J. Durbin (D-Ill.) and Rep. Rosa L. DeLauro (D-Conn.) requested that the Education Department’s inspector general investigate the agency’s handling of the transaction.
“The downfall of Argosy University has been a long time coming,” Durbin said in an email Wednesday. “The Department of Education must immediately step up to work with accreditors and states to establish options for students to continue their studies at high-quality institutions.”
Urdan, of the education advisory firm, said the Education Department needs to pay closer attention to enrollment trends and begin the process of restricting student aid much sooner than it did. Argosy had been on a form of financial aid restriction since 2007 but was still allowed to receive federal loans and grants.
Enrollment at the university, known for programs in psychology and education, has been on the decline. One court document said 17,600 students were enrolled in the school last year, but the Education Department says that number may be closer to 8,800 these days.
If the school closes, thousands of students will have a tough decision ahead of them.
Transferring credits to complete the same degree at another institution will make Argosy students ineligible for federal student loan forgiveness under what’s known as a closed-school discharge. Anyone enrolled at Argosy or who withdrew from the school in the past four months is eligible for this form of loan forgiveness. Visit https://studentaid.ed.gov/sa/about/announcements/dream-center for more information.
Students who choose to start over can apply to have their federal loans discharged if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college, a process known as a borrower defense to repayment. Few former students have been successful in taking this path to loan forgiveness.
There is no guarantee that other universities will accept credits from Argosy. D’Queen Thompson, a doctoral candidate in the counseling education program at Argosy’s Tampa campus, said the schools she has contacted would take only 18 of her 49 academic credits.
“I’ve come so far. I’ve done the work,” said Thompson, who is finishing the final chapters of her dissertation. “To know that I will not be acknowledged for that work makes me feel helpless.”
Thompson said she knew something was wrong when three of the people on her dissertation committee told her in December they were leaving Argosy. No one told her the school was having financial troubles, but Thompson said that became apparent when classmates shared frustrations about not receiving their stipends.