Education Department cancels loans

Up to 1,500 defrauded students helped after schools closed down

About 1,500 students who attended two art institutes that were part of the sudden collapse of a career-school chain earlier this year will have their federal loans canceled, Education Secretary Betsy DeVos said on Friday.

It was a rare victory for borrowers seeking debt relief from a department that, under DeVos, has frozen or curtailed relief programs for students who claim that schools defrauded them. Borrowers who attended the two schools, the Art Institute of Colorado and the Illinois Institute of Art, sued the department last month, seeking to have their loans eliminated.

“Students were failed and deserve to be made whole,” DeVos said. Students who attended the schools from late January 2018 through the end of last year, when they shut down, will have their loans for that period canceled, the department said.

Borrowers will still generally owe on federal loans they took out before Jan. 20, the department said in an email sent to borrowers on Friday. Some people, however, may qualify to have all of their loans eliminated through the department’s closed school discharge program.

The decision was the latest twist in the messy unraveling of the chain, Dream Center Education Holdings, which owned dozens of campuses under the Art Institutes, South University and Argosy University brands.

Dream Center was owned by a Christian nonprofit that acquired the troubled group of for-profit schools in late 2017. It closed some schools within a few months, and the entire chain abruptly shut

down barely a year later after millions of dollars in federal financial aid funds that were owed to students went missing. The money has still not been recovered.

By law, the Education Department is not allowed to release federal student loan funds to for-profit schools that are not accredited.

But the department sent more than $10 million to the two schools and, according to emails and other records, told Dream Center officials that it was working to allow schools to become retroactively accredited.

The department has been under increasing pressure from lawmakers and courts who say it has been stonewalling on student debt relief programs, which Devos has previously derided as “free money” giveaways.