Debt-Ridden Students Claim For-Profit Art Institutes Defrauded Them With Predatory Lending Practices
As the Art Institutes closes 18 campuses, students claim to have been defrauded by high tuition costs, soaring interest rates, and few career prospects.
The struggling Art Institute system, which earlier this month announced plans to shutter 18 campuses by the end of the year, is coming under fire from former students who are accusing the school of fraud and predatory loan practices.
Under President Barack Obama, the Department of Education had cracked down on for-profit schools, but President Donald Trump’s administration appears to have eased the pressure on such institutions considerably.
Students are calling on the Department of Education to enforce an Obama-era regulation that would erase debts accrued at predatory schools of higher learning, according to CNBC. The Art Institutes’ financial aid offices, students say, would routinely call students to inform them that their student loans had run out and pressure them to take on more debt. The bill for a two-year associate’s degree could run as much as $90,000 and leave students with little to show for it, according to some alumni.
On the I am AI Facebook group page, some students claim that high interest rates have doubled the principal of their loans. “I have two loans totaling 13k with interest rates of nearly 9 percent and 11 percent,” wrote Sam Kotowski, asking for advice about refinancing private loans. “I have paid these fully since 2012 and, while it hasn’t grown, the total balance has only decreased about $300 when I have paid about 14k on them.
Several photographs show students protesting the high cost of their tuition and the resulting debt. The group has some 7,000 members, but a whitehouse.gov petition calling for loan forgiveness for AI students has thus far only attracted 159 signatures.
The law protecting students was set to take effect in June of last year, but its implementation has faced numerous delays under Secretary of Education Betsy De Vos, and may instead be dismantled. She has criticized the rule’s push for loan forgiveness, saying at a 2017 conference that “all one had to do was raise his or her hands to be entitled to so-called free money.”
De Vos’s Department of Education has not filled any requests for debt forgiveness, and a team tasked with investigating possible fraudulent activities at for-profit institutions has shrunk to just three employees, ceasing much of its activities, according to the New York Times. (The department did not respond to inquiries from artnet News.)
In May of this year, the Times editorial board released an opinion piece accusing the Trump administration of aiding the for-profit college system’s efforts to defraud college students. De Vos has hired officials with known ties to for-profit colleges, such as senior policy advisor Diane Auer Jones. The department’s much-diminished investigative team is now led by Julian Schmoke, a former dean of DeVry Education Group, once a target of the probe.
Just before Trump took office, the Department of Education released a list of over 800 college programs that leave their students in more debt than can be reasonably repaid. If loan payments were too great a percentage of the average graduate’s income, a school would become ineligible for taxpayer-funded federal student aid programs. The list included many of the Art Institutes.
At the time, the Art Institutes were a for-profit chain owned by Education Management Corp, which paid a $95 million settlement in 2015 due to consumer fraud and other violations. As part of the deal, the school agreed to forgive more than $102.8 million in debt from some 80,000 former students—but only about $1,300 each.
Early last year, Dream Center Education Holdings, part of faith-based Los Angeles charity the Dream Center, purchased the 31 Art Institute schools, as well as the Argosy University and South University schools, from Education Management for $60 million.
Dream Center moved to convert the schools into nonprofits. (The approval from the Department of Education is still pending.)
“Amazing how the government just let them settle and not restructure anything about their organization to improve the quality standards of education,” wrote former AI student Kali Koller on Facebook, noting she was citing the 2015 settlement in her borrower’s defense application.
Education Management filed for bankruptcy last month, and the company’s website has been shut down. However, an edmc.edu account sent an email in response to an artnet News inquiry addressed to the Dream Center newsroom email. Despite the conflation of the two companies’ emails, the message insisted that Education Management’s “bankruptcy filing is in no way associated with Dream Center Education Holdings.” Neither organization responded to further request for comment.
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