In EDMC sale, ties to for-profit education to face scrutiny
March 13, 2017 12:00 AM
Education Management Corp. is trying to sell its schools, including The Art Institute of Pittsburgh on the Boulevard of the Allies, Downtown.
By Daniel Moore / Pittsburgh Post-Gazette
Last year, an “extremely enthusiastic” charitable nonprofit foundation based in India approached Education Management Corp. with an offer.
Hoping to break into the United States, the Ritnand Balved Education Foundation wanted to buy the Pittsburgh for-profit education provider’s two largest art institutes — the New England Institute of Art, in Brookline, Mass., and the Art Institute of New York City — and keep them open as nonprofit institutions, according to letters and emails exchanged between EDMC and Massachusetts education officials.
But the Massachusetts Department of Higher Education expressed skepticism about the proposed deal. After a meeting with the department in July, EDMC faced a torrent of questions from officials about how the new owner would operate the New England school and how students and curriculum would be affected. In November, EDMC notified officials it had abandoned the sale.
Now, Pittsburgh-based EDMC is pursuing much larger transaction: a sale of all of its schools that are still accepting students to the Dream Center Foundation, a Los Angeles-based philanthropic organization affiliated with a Pentecostal church that funds programs across the country for underprivileged people.
Analysts said the proposed deal — including 31 Art Institute schools, as well as the South University and Argosy University educational systems — is sure to come under scrutiny from the government regulators as well as the institutional accreditation agencies tasked with approving it.
Borrowed money, muddied mission?
Questions about the deal could emerge when regulators follow the money financing it — money which has ties to veterans in the for-profit industry.
To acquire EDMC’s campuses, Dream Center Foundation, which has no experience running higher education institutions, said in a news release it will receive an undisclosed amount of money from Najafi Cos., a private investment firm based in Phoenix. No price was disclosed.
Najafi Cos. was part of a group of private investors that spent $1.1 billion in February to buy the Apollo Education Group, the for-profit owner of the University of Phoenix and other chains. The U.S. Department of Education and accrediting agencies approved that deal, which kept Apollo a for-profit company.
Najafi Cos. is the principal financier of Dream Center’s purchase, but money is coming in from other places, too. Dream Center disclosed that additional financing is coming from the Richardson Family Trust, a fund with ties to Brent Richardson, who the Dream Center has tapped to run EDMC’s schools.
Mr. Richardson is known for building Grand Canyon University, a for-profit Christian school based in Phoenix that he bought in 2004 alongside Michael K. Clifford, a former Dream Center board member. A struggling nonprofit at the time with low enrollment and annual losses of $16 million, Mr. Richardson and Mr. Clifford have claimed credit in turning the school into a profitable enterprise.
Before resigning as chairman of Grand Canyon in January, Mr. Richardson attempted to turn it into a nonprofit —but its accreditation agency, the Higher Learning Commission, rejected that move last year.
Grand Canyon proposed creating a nonprofit “school corporation,” while housing other functions of the company in a separate, unaccredited and for-profit “services corporation.”
The Higher Learning Commission, in a statement in February 2016, said it worried the structure would put too much of the academic programs under for-profit control. The Chicago-based nonprofit agency did not return calls for comment.
The flow of money from such for-profit veterans is an unusual arrangement that muddies the Dream Center’s charitable mission, said Bob Shireman, a senior fellow with The Century Foundation, a left-leaning think tank in New York City, and a deputy undersecretary of education during much of the Obama administration’s first term.
With Mr. Richardson serving as the chief executive of a nonprofit and having ties to a financier, Mr. Shireman wondered what type of ongoing control will the financiers have over the institution.
“If the Dream Center were buying the EDMC campuses with their own money, that would be a very good sign that it was a legitimate third-party transaction, a charitably oriented group that really wanted to do what’s best for students,” Mr. Shireman said.
“This looks like financiers went to a charity and said: ‘Let us put these schools under your charity umbrella, and we’ll run them in a way that makes money for you and for us as the financiers.’ ”
Officials with Dream Center did not respond to questions seeking more details about the money from Najafi and the trust fund with connections to Mr. Richardson. Attempts to reach Mr. Richardson were unsuccessful.
Mr. Clifford, the former Dream Center board member and entrepreneur who worked with Mr. Richardson to build Grand Canyon, has not disclosed any involvement in the EDMC deal or in bringing Mr. Richardson aboard. In an email, he declined to answer questions, saying, “I am a prayer warrior for whatever the Dream Center does to help the poor ... via education.”
Rules to protect students
Some elected officials and student debt organizations argue that moving the EDMC schools to nonprofit status would allow the operators to skirt federal rules imposed on for-profit institutions in recent years.
After investigations into predatory student loan practices, the Education Department passed two big rules. One is “the 90/10 rule,” which bars for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid. The agency also requires for-profit chains to meet standards that measure whether graduates obtain “gainful employment” to repay student loans.
The proposed sale comes 16 months after EDMC settled lawsuits from the U.S. Department of Justice and attorneys general from 39 states that claimed EDMC illegally paid incentives to recruiters based on the number of students enrolled.
The court filings demanded $11 billion in federal student loan money be returned and tarnished EDMC with allegations of fraud, deceptive marketing and steering students into debt they couldn’t pay back.
EDMC’s programs “burden graduates with unmanageable student loan debt — programs that will be subject to even less federal oversight once they have been sold to a nonprofit,” said Toby Merrill, an attorney and director of the Project on Predatory Student Lending. The group, founded in 2012 within the Harvard Law School, represents students who owe money to EDMC.
“This type of transaction leaves former students struggling with unmanageable debt even more completely without recourse,” Ms. Merrill said.
In coming months, it will be up to the federal Education Department, under new secretary Betsy DeVos, and EDMC’s institutional accreditors to determine the fate of the deal.
Massachusetts officials, which scrutinized the Indian nonprofit’s offer last year, appear ready to fight. In a statement, its attorney general, Maura Healey, called the deal “a shameful attempt to avoid the rules put in place to stop its continued abuse of students and taxpayers.”
One of those students is Jenni Emlet, who took online courses in graphic design from the Art Institute of Pittsburgh from 2009 to 2012 and owes more than $60,000.
Facing mounting debt, she said, she dropped out halfway toward her bachelor’s degree and wound up working as a merchandising specialist for a retail organization. Without a degree, she couldn’t find a job.
“I’m very upset that I am making payments on an education that I’m not even using,” said Ms. Emlet, now 39 and living in Gastonia, N.C. “I’m pretty sure I’ll be paying back these loans until the day I leave this earth.”
Daniel Moore: email@example.com, 412-263-2743 and Twitter @PGdanielmoore.
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