Dive Brief:
- The Biden administration is providing $6.1 billion in automatic student loan relief to roughly 317,000 former students of the Art Institutes, according to a Wednesday release from the U.S. Department of Education.
- The relief applies to borrowers who enrolled at any of the now-shuttered college chain’s campuses between Jan. 1, 2004, and Oct. 16, 2017, per the release. The department will immediately pause payments for borrowers eligible for debt discharges, including those who have not applied for loan cancellations, it said.
- The move comes after the Education Department found that the for-profit Education Management Corp., which owned the Art Institutes until October 2017, made “pervasive and substantial misrepresentations to prospective students,” the department said in the release.
Dive Insight:
The Art Institutes — which at one time had more than 50 locations — closed its eight remaining colleges last fall following several troubled years..
The first Art Institute was founded in Pittsburgh in 1921 and was acquired by Education Management Corp., or EDMC, in 1970. Under the latter years of EDMC’s ownership — starting not long after a private equity takeover of the company — the company began running into financial challenges amid enrollment declines and legal issues.
The Education Department found that the college system inflated its graduates’ employment metrics. For instance, the chain counted graduates as working in their fields when colleges didn’t actually know their graduates’ job titles. In some cases staff falsified salary data, the department said, citing testimony from high-ranking college officials.
The department also said that the Art Institutes under EDMC “exaggerated” its relationships with prospective employers and had a “negative reputation” among companies.
The findings are based on state investigations and lawsuits brought against the chain and its former owner.
“The Art Institutes preyed on the hopes of students attempting to better their lives through education,” Richard Cordray, outgoing Federal Student Aid chief operating officer, said in a statement. “We cannot replace the time stolen from these students, but we can lift the burden of their debt.”
The chain’s troubles continued after EDMC sold the Art Institutes in 2017. DCEH, the education arm of the faith-based nonprofit Dream Center, took them over — an acquisition that later came under scrutiny from a government watchdog.
Just months after the acquisition, DCEH faced tens of millions of dollars in operating losses, and tried to unload some of the colleges. Art Institute students also sued the organization, alleging they weren’t told when their colleges temporarily lost accreditation due to the acquisition.
By early 2019, DCEH was in receivership — a legal process that provides protection from creditors — and selling some of its colleges while closing others.
When the Art Institutes closed its remaining campuses — in Florida, Georgia, Virginia and Texas — it blamed a “culmination of events over the past decade, both external and internal to the campus operations,” the Education Department said Tuesday.
The agency noted it has provided a total of $28.7 billion in debt relief to 1.6 million borrowers who were defrauded by their colleges, whose institutions precipitously closed, or who were entitled to loan forgiveness through court settlements.
The Biden administration issued new borrower defense regulations in 2022 to make it easier for former students to receive loan discharges in cases of fraud and other covered issues. But an appellate court recently blocked those regulations from taking effect while they wind through litigation.