Education Corporation of America Whines Over Failure

By on October 22, 2018

Education Corporation of America (ECA), Virginia College, and New England College of Business and Finance filed suit against the Department of Education claiming Obama administration actions had unfairly cut off their access to easy federal student loan money and that is causing them to go under.

Now you would think that the New England College of Business and Finance would have seen far in advance that when you structure hard brick and mortar assets against narrow source funding and a dynamic economy that you could land in trouble. In that case, substantial reserves should be stashed away to weather any financial storms.

The complaint filed by ECA says, “Enrollment in many of ECA’s campuses has been falling for several years. The decline in enrollment can be attributed to numerous regulatory and macroeconomic factors, including: (a) the previous Administration’s decision to remove the federal recognition of the Accrediting Council for Independent Colleges and Schools (“ACICS”), the agency that accredits nearly all of the ECA Institutions, which required ECA to advise potential students of potentially dire consequences if ECA was unable to obtain alternate accreditation within a specified time frame, thereby causing some potential students to choose not to enroll or remain enrolled; and (b) the recent upturn in the business cycle that has lowered the unemployment rate to historic levels, so that more of the nontraditional students who typically enroll in the ECA Institutions are able to find employment without the need for more education or training.” – Source

But what the ECA suit does not say about ACICS is how the accreditation agency had taken their own action against Virginia College over their concerns.

ACICS said, “The Council has reviewed your recently submitted 2017 Campus Accountability Report (CAR) for the Macon, GA, campus, and the campus-level placement rate of 16% is materially below the Council standard of 60%.” – Source

When your own accreditation agency says you suck then that’s not really the Department of Education’s fault.

READ  Education Corporation of America Tries to Slam Door to Keep Out Plaintiffs

According to ECA, they are in big financial trouble. “On or about September 10, 2018, ECA announced that it intended, in accordance with the expectations of the HEA, to discontinue new enrollments and to teach out the students already enrolled at 26 of its campuses, after which it intended to close the 26 campuses.”

It looks like the big problem with that strategy is the fact that “Several ECA campuses are presently the subject of landlord actions to recover on alleged claims for monetary judgments, which are ongoing, as well as to dispossess ECA from possession of such campuses, and ECA is a party to other ongoing commercial and employment litigation and arbitration proceedings with in excess of 70 landlords, vendors and other parties.”

The list of ongoing litigation is painful to read even though most of the cases seem to be driven towards arbitration.

ECA and the schools seem to have thrived under easy access to federal student loan money and need to keep that crack pipe full or they won’t be able to meet their “outstanding secured and unsecured obligations.” Ironically the schools want to restructure their debts and get relief from their obligations just like overextended students want to do with federal student loans in bankruptcy.

It looks like ECA has a potential buyer for some of their schools. Unbelievably the buyer is Stalking Horse. Seems like an appropriate name. “Under the proposed restructuring plan (the “Restructuring Plan”), the Monroe Lenders, or certain of them (in their capacity as a bidder for the assets of ECA, the “Stalking Horse”) have offered to purchase the Go-Forward Schools and ECA’s management platform free and clear of all claims, liens and encumbrances, pursuant to which ECA would transfer the Go-Forward Schools and management platform assets to the Stalking Horse, who will also pay the Teach-Out Schools’ negative operating cash flow, ensuring the protection of the students’ interests and facilitate the administration of the Teach-Out Schools.”

READ  Education Corporation of America files for receivership: Using lawyers' tricks to suck up more federal student-loan money

ECA has requested they be placed in receivership and run by an outside entity. – Source

I get it, at this moment ECA is in panic mode. They want their federal student loan money to keep flowing. They even make the argument “The Secretary of the DOE will not suffer any harm if the Receiver is immediately appointed and the Temporary Restraining Order and Preliminary Injunction are entered. Instead, the goals and policies of the DOE and the Secretary will be fulfilled because the appointment of the Receiver and entry of the Temporary Restraining Order and Preliminary Injunction will protect students and minimize the disruption to their educational plans and, further, will allow the maintenance of the administrative structure that is necessary for ECA and the Receiver to properly manage and account for the use of all Title IV program funds that the DOE disburses to students throughout the receivership period.”

However what the suit fails to say is that the 20,000 students will simply go into more debt and ACICS says the graduation rate sucks. If the school does not close, which would make students eligible for closed school student loan forgiveness then you are going to have the bulk of nontraditional students on the hook for student loan debt they can’t repay to the government.

So the suggestion is made to keep the schools open “aiding the DOE by eliminating the need for the DOE to discharge potentially millions of dollars of Title IV program loans to students who are unable to complete their programs.”

You know why the DOE would discharge millions in student loan debt because the school failed to adequately engage in good business planning and of course there is the issue their placement rates suck.

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About Steve Rhode

Steve Rhode is the Euro-Video and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

6 Comments

  1. Champion of Necessity

    November 6, 2018 at 9:29 am

    This article is quite misleading. For the one school whose placement rates “sucked”, there are five others whose rates exceeded accreditation expectations. As far as the “20,000” students who are accruing student loan debt – you mean 20,000 of the 44 million students in America with student loan debt right? Students are aware of the cost of the program, the placement rates per campus as well as the average salary per campus BEFORE they enroll in school.

    It is safe to say the author has a disdain for the company but believe it or not, we are necessary. We help people achieve their goals both personally and professionally. Like any business, financial hardships may arise but please, DO NOT take away from the hard work that many good people are doing to help students everyday. Leave your opinion at the door and just state the facts – ALL OF THEM. Otherwise, you have a misleading piece of crap. And that – is what truly sucks!

    • Steve Rhode

      November 6, 2018 at 9:48 am

      According to ACICS, the following ECA schools were issued show-cause directives:

      Brightwood Career Institute (00011179), Harrisburg, PA (Student Achievement)
      Brightwood College (00010164), Houston, TX (Student Achievement)
      Brightwood College (00170988), El Paso, TX (Student Achievement)
      Virginia College (00010582), Birmingham, AL (Adverse Action from another Agency
      and Student Achievement)

      The following schools were issued compliance warnings:

      Brightwood Career Institute (00011256), Pittsburgh, PA (Student Achievement)
      Brightwood College (00223659), Beltsville, MD (Student Achievement)
      Brightwood College (00170992), Dallas, TX (Student Achievement)
      Brightwood College (00235912), Dayton, OH (Student Achievement)
      Brightwood College (00010363), Hammond, IN (Student Achievement)
      Brightwood College (00171034), Nashville, TN (Student Achievement)
      Brightwood College (00011298), Sacramento, CA (Student Achievement)
      Brightwood College (00223669), Salida, CA (Student Achievement)
      Brightwood College (00171010), San Antonio, TX (Student Achievement)
      Brightwood College (00173484), San Antonio, TX (Student Achievement)
      Brightwood College (00173481), San Diego, CA (Student Achievement)
      Virginia College (00010582), Birmingham, AL (Student Achievement)

      According to the Department of Education College Scorecard, the graduation rates for the remaining schools was:
      Ecotech Institute – 42%
      Golf Academy of America – 82% avg
      New England College of Business – 35%

      It appears to be more than “one school” with issues in the ECA family.

      • Champion of Necessity

        November 6, 2018 at 11:17 am

        That was even more misleading.

        “A Compliance Warning action is taken when the Council determines that an institution or campus is not in compliance with the Accreditation Criteria but is able to bring itself into compliance within the time frame specified by the Council (Section 2-3-220 and Council Actions, Introduction).”

        For example: Campus A had 6 programs and added a 7th. In this new program the campus eventually graduates 4 students in it’s first reporting cohort. Of the 4 graduates, 2 of them find employment, one no longer wants employment in that field and the other has employment out of the field. For Campus A – 6 programs met both retention and placement rates and the 7th met retention rates only. That school receives a compliance warning.

        This is, of course, a very general example (not tied to any school) but missing placement rates for one program by one student doesn’t mean the college sucks. It means it is a good school with improvements needed. My point – taking a snapshot of information, highlighting the negative and adding your biased opinion causes someone to believe this article at face value. That is the very definition of misleading.

        Regardless of what you may think, we are needed in our community. I will always be proud of the work we’ve done and won’t hesitate to defend it.

        • Steve Rhode

          November 6, 2018 at 11:51 am

          Looks like the court dismissed the ECA request for receivership and ACICS has taken additional action based on the admission of financial instability.

          As far as the warnings, ECA schools received a number of them when the vast majority of other ACICS schools did not. I understand the defense of your experience and maybe you are actually employed by ECA. That’s fine but you may have a bias in this issue. You can defend your work but according to ECAs own court statements, it’s enrollment and profitability have been sliding for a number of years and marketing expenses far exceed educational expenses. You can take issue at what I’ve said, and I appreciate the engagement, but that does not change the underlying fundamental facts ECA presented that they have been failing financially for some time now and attempting to sell those schools the investment group will buy before it all goes under.

          In the court documents, I’ve read ECA is not making the same claims you are. The primary focus appears to be continued access to federal student loan money to facilitate the closure of failing schools, the reassignment of students to teach-out programs, and the transfer by sale of a subset of schools.

        • Steve Rhode

          November 6, 2018 at 11:54 am

          Oops, I forgot to include this update on the ECA case from today.

          “JUDGE TOSSES FOR-PROFIT COLLEGE’S BID TO RESTRUCTURE OUTSIDE BANKRUPTCY: A federal judge on Monday rejected an effort by a financially struggling for-profit college chain to effectively restructure itself and change ownership without first declaring bankruptcy or jumping through state and federal regulatory hurdles. Education Corporation of America, which operates Virginia College and Brightwood College, had asked a federal judge in Alabama to appoint a receiver to oversee its restructuring while also shielding the company from creditors and requiring the Education Department to continue to provide student aid funding to its schools.

          — Federal law permanently bars any company that files for bankruptcy protection from ever receiving federal student aid funding. ECA argued that it needed the court’s help to make sure it would continue accessing federal student aid while it attempts to restructure itself.

          — But the judge sided with the Education Department and DeVos, who were named as defendants in the company’s lawsuits and sought to dismiss the case. U.S. District Judge Abdul K. Kallon ruled that the for-profit college chain did not have standing to bring the case because it wasn’t alleging an actual or immediate injury. He didn’t rule on the merits of its case.

          — The lawsuit, which describes the company’s financial situation as dire, has also triggered a sanction from its accreditor . The Accrediting Council on Independent Colleges and Schools said last week that the company must demonstrate why it shouldn’t remove approval for its Virginia College chain in light of its financial instability.”

  2. Slave to the corporate machine

    October 30, 2018 at 9:58 pm

    As an instructor with ECA we too have been deceived and left in the dark. We have been charged furlow days to pad the receivables. Told we would be in a teach out situation and offered severance pay amounting to one moths salary if we stayed for the entire teach out period. ECA is owned by the Chicago based firm Willis, Stein and Partners hiring failed ex CEO’s like Stu Reed. Who had a roll in the demise of Sears. Bad owners and management from another greedy corporation. These are the true criminals is the downfall of ECA and should pay the price for it’s failure.

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