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Dive Brief: 

  • The Center for Excellence in Higher Education, a former college operator whose institutions closed down in 2021, is suing the U.S. Department of Education, alleging the agency forced its institutions to shutter by withholding millions of dollars amid a campaign to close private career colleges. 
  • CEHE is seeking $500 million in damages related to the closure, including lost revenue and money the organization had to front because regulators placed it on a list of colleges that can’t receive federal financial aid dollars for students in advance.
  • The organization alleges the Education Department forced the college to close suddenly so students would qualify for loan discharges. That enabled the Education Department to attempt to recoup those costs from CEHE’s colleges. 

Dive Insight:

The lawsuit represents a new front in the battle between the Education Department and for-profit colleges, which have accused the agency of targeting some of their sector’s institutions with restrictions that make it impossible for them to keep operating. 

The Education Department did not immediately provide comment when contacted late Tuesday. 

CEHE alleges the Education Department bowed to public pressure to force it to close its colleges, which it bought in 2012 when they were for-profit institutions. The Utah-based organization snapped them up with the aim of converting them into nonprofits. The Obama administration blocked the move because, at the time, the colleges’ former owner retained close financial ties with CEHE, The Chronicle of Higher Education reported

CEHE sued the department over the decision and reached a settlement with the Trump administration in 2018 that gave its colleges nonprofit status.

However, accusations that CEHE was operating the institutions as nonprofits in name only dogged the organization. It also spent years attempting to fend off allegations that its colleges misled students and that students had poor outcomes. 

Those accusations came to a head in 2020, when a Colorado judge ordered one of CEHE’s chains to pay $3 million for allegedly misleading students about the job opportunities and earnings they could expect. An appeals court partly overturned that ruling the next year

By then, one of CEHE’s institutions lost its accreditation, and the organization had made the call to shutter its colleges. 

The lawsuit accuses the Education Department of improperly withholding vast sums of money, thereby forcing CEHE colleges to precipitously close. Eric Juhlin, CEHE’s acting CEO, said in a statement that the lawsuit hopes to expose a decades-long campaign by the Education Department to shut down as many private career colleges as it can. 

“In 2021, CEHE’s nonprofit colleges became a victim of this campaign,” Juhlin said. “However, CEHE is fighting back, shining a light on the Department’s nefarious tactics and seeking damages for the Department’s illegal actions.”

The lawsuit accuses the Education Department of breach of contract, breach of fiduciary duties, breach of good faith and illegal taking of funds. 

CEHE’s complaint focuses on two pots of money. One is a letter of credit that CEHE agreed to pay the Education Department in 2015 to keep accessing federal financial aid. 

The agency required the letter of credit because CEHE’s compliance with the Education Department’s financial responsibility standards fell under minimum requirements. The organization said it dipped below the standards in part because of debt it took on to finance purchasing of the colleges.  

The Education Department originally agreed to return the funds in December 2016, according to the lawsuit, but then delayed the payback. In 2017, the department said it wouldn’t release the funds because of issues with CEHE’s financial audit. 

For-profit colleges have different auditing requirements than nonprofits. The lawsuit alleges the Education Department “expressly told” CEHE it would consider its colleges nonprofits, but then retroactively imposed for-profit auditing requirements on them. 

The second pool of money concerns federal financial aid advances CEHE provided to students with the expectation that the Education Department would reimburse the organization. 

In 2021, the Education Department placed CEHE’s colleges under heightened cash monitoring 2, or HCM2, status. This status requires colleges to front the money for students’ federal financial aid payments before asking for Education Department reimbursements. Institutions not on HCM2 are typically allowed to collect financial aid funding from the department earlier.

CEHE advanced about $43 million under HCM2, but it alleges the Education Department improperly denied the organization’s requests to be reimbursed. It also accused the agency of failing to respond to technical issues the organization encountered when attempting to file reimbursement requests. 

These moves were intentional, the lawsuit says. 

“The Department’s actions were the culmination of a playbook designed to force CEHE’s precipitous closure and pave the way to impose massive closed-school discharge liabilities in the future,” it says.