Education Corporation of America (ECA), a for-profit college chain, filed a lawsuit a few days ago in an Alabama federal court. The lawsuit seeks to put ECA into receivership, and it asks the court to halt all litigation against it. ECA also wants Betsy DeVos and the Department of Education to keep showering it with student-loan money while it straights out its financial affairs.
ECA is closing more than two dozen of its campuses; and it needs to keep getting federal student-loan money, it argues, so it can do a "teach out" at campuses it intends to close. If it allows current students to finish their academic programs (through a teach-out), those students won't be eligible to have their student loans forgiven under the "closed school" rule. That will save the Department of Education a lot of money, ECA says.
This line of bull reminds me of the story about a man who murdered his parents and then begged the court for leniency on the grounds he was an orphan.
ECA operates under numerous brand names, including Virginia College, New England College of Business, Brightwood College, and Golf Academy of America; and it is in big financial trouble. It submitted a list of legal claims against it to the Alabama court, which is 15 pages long. Landlords are suing for back rent and other litigants have sued for breach of contract, fraud, failure to pay wages, race discrimination, age discrimination, false advertising and some other stuff.
Why doesn't ECA just file for bankruptcy? One reason: Under federal law, ECA would immediately lose access to all federal money if it filed for bankruptcy. It is hoping to keep federal money flowing as a long as possible.
I hope Judge Abdul Kallon sees through ECA's dodgy litigation ploy and refuses its plea for a receiver and an injunction against its creditors. (Judge Kallon granted ECA a temporary restraining order on October 19, but he will have to extend it to keep ECA's creditors at bay.)
ECA needs to close, and it needs to close NOW. Every day it continues operating is another day uninformed students will be taking out student loans to pay for an ECA education that probably won't get them a good job. In fact, ECA's own accrediting agency scored ECA's campus-level job placement rate at only 16 percent.
David Halperin. For-Profit College Chain Claims Financial Distress, Sues DeVos. Republic Report, October 18, 2018.
Steve Rhode. Education Corporation of America Whines Over Failure. Get Out of Debt Guy (blog), October 22, 2018.
Alan White. For-profit college chain files (for receivership). Credit Slips, October 22, 2018.