These SoCal Students Are Missing Millions in Federal Loans As Their Colleges Face Bankruptcy

Western State College of Law students from left to right: Oliver Congleton, Jose Michel, Kiera Michel, Jonathon (last name withheld). (Libby Denkmann/LAist)

Thousands of Southern California college students have been going without financial aid and money from federal loans for weeks while their schools' parent organization moves along the road to bankruptcy.

Students at Argosy University and Art Institute, with multiple campuses around California, and Western State College of Law in Irvine are struggling to make ends meet without funds they borrowed from the federal government for living expenses. Many of these students say they can't pay rent and utilities or put food on the table until the situation is resolved.

"No groceries, gas, all of that," said Kiera Michel, a first-year law student at Western State. On Tuesday night, she was in the audience at a Mission Viejo town hall held by 45th district Congresswoman Katie Porter. "I'm lucky I have my parents to help support me, but not everyone has that."

The money has been missing since Jan. 18, when students were due their financial aid and loan disbursements. That's when the administrations at dozens of colleges run by Los Angeles-based nonprofit Dream Center Education Holdings (DCEH) were informed the schools were being put in federal receivership. Without major changes, the schools may no longer be eligible for federal Title IV funds.

"These are our loans, just like you would take a loan out for a car or for a home. But we're not getting our money," said Western State student Oliver Congleton.

On stage at the town hall, Porter said the DCEH schools have been placed under Heightened Cash Monitoring 2 status by the Department of Education.

"It's what it sounds like. It's not good," Porter said. "It means we really are concerned about where money is going in and out of the university."

Up until her successful run for Congress, Porter was a UC Irvine law professor specializing in bankruptcy and debt collection.

She said her staff is working on getting emergency food services arranged for students and reaching out to the United Way to support those that are struggling.

The students said the path forward is murky, and they're not getting many answers from school officials.

"We have uncertainty whether the school is going to stay open next semester," Congleton said.

Congleton plans to go into criminal defense, starting out as a public defender. But the financial hardship and questions surrounding Western State's future are threatening to derail his goals. "If we all have to transfer, where do we go?"

Michel said classmates in honors programs have been forced to drop out because they can't cover day-to-day expenses.

"They're telling us to stay focused on what we can. Complete our studies, do our readings and go to class like everything is normal," she continued. "But it's hard, we're still worried about what's going on."

HOW DID THIS HAPPEN?

DCEH has been in a financial spiral for the last two years. When it was placed in receivership in January, a court-appointed mediator — Mark Dottore of Cleveland — took over its business dealings.

In 2017, DCEH bought a network of schools, including Argosy University, South University and Art Institute from a company called Education Management Corporation. The goal was to turn the for-profit campuses into a thriving network of nonprofits. But things didn't go as planned. DCEH said the school network's financial picture was worse than expected. It shuttered 30 campuses in December.

When Dottore opened the books last month, funds were scarce.

After payroll and other expenses were covered, there was only $3.8 million left in the bank to run the schools, according to a letter Dottore wrote to the Department of Education dated Feb. 7. He called the cash situation "dire."

According to the letter, the school owes at least $13 million in student stipends.

"There's millions of dollars that students were expecting in financial aid that has not been disbursed to them, and at the same time the receiver in federal court is saying 'I can't find millions and millions of dollars,'" Porter explained.

Earlier this month, Dottore told the Arizona Republic his office would communicate with bill collectors and landlords to explain the situation if students were facing serious hardship.

"I do not — repeat, do not — have this money, nor would I be hanging onto it if I had," Dottore told the paper. "When I find it, the second I have access to it, I'll give it to these students."

His office didn't respond to a KPCC/LAist request for comment.

At her town hall, Porter questioned whether due diligence was done to look into the structure, governance and viability of DCEH when it took over the for-profit schools network.

"I would like to ask Secretary (Betsy) DeVos some really tough questions," she said. "This is a good example of where additional oversight is needed."

Porter said she hopes the House Committee on Education and Labor will take up the issue.

On Friday, the Department of Education told the Washington Post it would forgive any federal student debt for the DCEH schools' spring semester. But so far, there's no help for the students' living expenses.

Senator Dick Durbin of Illinois and Congresswoman Rosa DeLauro of Connecticut last week sent a joint letter to Attorney General Bob Barr, asking his office to investigate the Education Department's handling of the DCEH case.

Congresswoman Katie Porter (D-Irvine) talks with Western State College of Law students after a town hall event on Tuesday, Feb. 19, 2019. (Libby Denkmann/LAist)

WHO IS AFFECTED?

Dream Center Education Holdings runs dozens of campuses across the country. In addition to Western State College of Law, DCEH schools include Argosy University locations in Los Angeles, the city of Orange, and Santa Ana, and Art Institutes like the one in Hollywood.

In a press release last year, DCEH touted its reach: 62 campuses in the U.S., with 10,000 employees serving more than 50,000 students. The organization told Inside Higher Ed there are about 22,000 students enrolled at the Art Institute, more than 17,000 at Argosy University and more than 14,000 at South University campuses.

On its website, Western State College of Law says its student body numbers 411.

KPCC/LAist reached out to several DCEH schools around Southern California for comment, but emails and calls went unreturned. Argosy University in Los Angeles said they had no information to share, and all questions should be directed to the receiver in Cleveland.

Despite its recent for-profit history, Congresswoman Porter stressed that Western State College of Law should not be written off as a shady institution doomed to fail. Founded in 1966, the college is the oldest law school in Orange County and provides solid legal training, according to Porter.

"These are students getting a good education so they can become quality practicing lawyers, and they are in a very difficult situation right now," she said.

However, Argosy University and its affiliated schools are in danger of losing accreditation from the WASC Senior College and University Commission.

SOUND FAMILIAR?

There have been a couple of major for-profit college meltdowns in recent years.

Californians will remember Corinthian Colleges Inc., which was forced to shut down after a federal investigation revealed predatory and fraudulent practices, like falsifying job placement data. The company filed for bankruptcy in 2015.

The next year, then-Attorney General Kamala Harris had reason to crow over when her office won a $1.1 billion judgment on behalf of students. Corinthian targeted low-income and disadvantaged communities, according to the Attorney General's office.

The company had around 81,000 students enrolled across the country.

And last year, 750,000 former students won a legal victory against for-profit behemoth ITT Tech, which shut down in 2016. A federal judge gave final approval in November to erase $600 million in debt owed to the school.

WHAT ARE THE STUDENTS DOING?

They're going to classes, studying for exams, and trying to piece together money from relatives and friends to pay for expenses that their stipends would normally cover.

Several Western State law students at Porter's town hall Tuesday night said it's been hard to organize a larger protest when most of them are neck-deep in schoolwork and worried about finances.

The school has a well-regarded immigration clinic which started a GoFund Me page to cover basic expenses to keep the office up and running.

During this uncertain time, "the Clinic is representing a full docket of detained asylum, bond, and other removal defense cases," the page says.

Elsewhere, others are pitching in to help Western Staters. "Some local attorneys and alumni have donated Visa gift cards, things to help us get by," said student Jose Michel. "We have a food pantry at school helping us day by day. But we just want some transparency."

This story has been updated. A previous version incorrectly identified the Los Angeles Film School as an Art Institute campus. It has an articulation agreement with the Art Institute but is not part of the school network owned by Dream Center Education Holdings.