‘Dimmed’ hopes for money owed to art students

Millions of dollars in federal financial aid remain out of reach for students at the Art Institute of Pittsburgh and other schools, according to a filing Tuesday by a federal receiver controlling several financially struggling schools formerly owned by Pittsburgh-based Education Management Corp.

More than $13 million owed to students to pay for rent, school supplies and groceries will be frozen for the foreseeable future, according to Mark Dottore, a Cleveland-based federal receiver who took control of the schools in mid-January.

“Hopes for a breakthrough have dimmed,” Mr. Dottore wrote to the judge overseeing the receivership case. Federal receivership is akin to the bankruptcy process, protecting the debt-laden schools from creditors as negotiations continue with potential buyers.

Earlier this month, Mr. Dottore wrote to the U.S. Department of Education asking for more money so he can pay $13 million owed to students at Argosy University, one of the former EDMC college chains. It is unclear how much total money is owed to Art Institute students.

The receiver has been trying to sort through complicated documents and financial statements to determine where all the funds are that Dream Center Education Holdings — the California-based nonprofit that purchased schools from EDMC in 2017 — was expected to have ended up with.

In the letter to the Department of Education, he described several problems with moves made by Dream Center that rendered the money owed to students difficult to track down. Among them, a service provider was holding on to fees for services that it was not able to provide.

That hunt continues, according to Tuesday’s filing.

Mr. Dottore added, “The receiver is still attempting to secure a workaround under which the funds will immediately be released from the [Department of Education] and to the students with the hope that easing the financial burden will allow them to return to their studies and focus on completing their degrees.”

The Education Department has not approved more funding, citing regulations that call for heightened financial scrutiny while schools are in federal receivership. By Dream Center Education Holdings’ earlier estimates, the schools are projected to lose a total of $64 million in 2019.

“The department is deeply concerned that the receiver and the institution are currently unable to fully account for the funds disbursed by the department to pay student account balances,” Education Department spokeswoman Liz Hill said in an emailed statement last week.

“This puts the institution in violation of our standards and puts the institution’s [federal student aid] access in serious jeopardy.”

Ms. Hill added that the Education Department is working to

forgive loans made to students this semester and by helping students find other schools that would allow them to finish their degree programs. Students who choose not to complete their program at another school could be eligible for loan forgiveness should the former EDMC institutions close, she said.

The Pittsburgh Post-Gazette reported earlier this month that some Art Institute of Pittsburgh students had been told their stipends were frozen.

The Arizona Republic has reported that students were missing mortgage payments, skipping grocery runs and taking out high-interest loans to get by.

The students’ need is dire, Mr. Dottore wrote in Tuesday’s filing.

His office, along with the schools and regulators, are fielding “hundreds of calls a day from students facing eviction, impacted by repossession, unable to pay childcare and unable to provide for their families as a result of these funds not being released.”