Tuesday, December 7, 2021

The Colbeck Scandal (South University and the Art Institutes)

(Updated January 9, 2022)

In July 2019, DC lawyer David Halperin published an expose on Colbeck Capital Management, a New York-based firm tied to two failing for-profit school chains: South University (South) and the Art Institutes (Ai).

South University and the Art Institutes have been failing for a decade, first as schools in the Education Management Corporation chain, then as a renovation project of Dream Center Education Holdings.  Graduates and former students at South University and the Art Institutes are struggling even more, with only about ten percent making progress with their student loans.  

Halperin’s article detailed an elaborate scheme, where Colbeck's shell-nonprofit, Colbeck Foundation (aka Education Principle Foundation)would rescue South and Ai from immediate failure--at a steep price to the schools--and more importantly to working-class students and their families.   

In 2017, before acquiring South University and the Art Institutes, Colbeck invested in Relativity School, rebranded as Studio School Los Angeles (and now known as Hussian School of Los Angeles).  Variety said Colbeck's business with Relativity Media amounted to a "Ponzi scheme."

Yet two years later, in 2019, the US Department of Education allowed the Colbeck Foundation to acquire South and Ai. 

Colbeck then hired Studio Enterprise to manage the schools. Studio's CEO Bryan Newman is a veteran of for-profit colleges and their surrogates, working at the University of Phoenix (1997-2010), University Ventures (2011-2017), and the defunct UniversityNow (2014-2016).  

In 2019, Studio Enterprise, as the online program manager (OPM) for the schools, began siphoning off tens of millions of dollars in assets and revenues every year—and apparently doing little to help South University and the Art Institutes. Studio's small group of workers, former employees of Education Management Corporation, Dream Center Education Holdings, and other subprime operations work remotely across the US.   

In 2020, South University alone received more than $200 million in US Department of Education funds: $174 million coming from federal student loans and $28 million in Pell Grants. South University was also granted more than $12 million in government covid relief--and a $50 million Main Street loan, with a $35 million balloon payment in 2025. 



In 2020, South also paid Studio Enterprise $20 million in management fees. According to the College Navigator, South University online has no full-time instructors and 747 part-time instructors.  

The Art Institutes were granted about $10 million in government relief.  Ai Atlanta has 8 full-time instructors and 26 part-time instructors for 814 undergraduate students. 

In 2021, after the collapse of the Center for Excellence in Higher Education (CEHE), another collection of subprime schools, Studio added workers from that company.  

In December 2021, two and a half years after the Colbeck-Studio Enterprise takeover, South University and the Art Institutes are still alive, but struggling through layoffs and cost cutting--the Colbeck Foundation allowing South and Ai to “operate independently” while the schools still pay Studio Enterprise tens of millions of dollars each year.  

The crippled South and Ai schools have survived only because they were handed tens of millions of dollars in government relief and in the case of South University, laden with $50 million in debt from the Federal Reserve’s Main Street Lending Program--with $44 million returned to the Colbeck Foundation.  The loan was issued by the Blue Ridge Bank of Martinsville, Virginia.


On GlassDoor, one former South employee alleged that "the students know the school is a scam and they are only signing up for the student loan stipend checks. Everyone who works there is fully aware of this as well."



Their accreditor, the Southern Association of Colleges and Schools Commission on Colleges (SACSCOC) has been indifferent to these developments.  

On December 18, 2021, the Higher Education Inquirer (HEI) made a formal complaint to the Federal Reserve Board's Main Street Integrity Hotline.   

On December 21, 2021, HEI made an inquiry to the State of Delaware about the Education Principle Foundation (aka Colbeck Foundation) and found that the non-profit corporation was delinquent with their taxes.  



So what’s the end game with these failing schools, and what is the federal government doing to oversee the money the Trump Administration spent on these schools?  More importantly, what’s happening to the students and those who will have to pay back their student loans?


5 comments:

  1. Late stage financial capitalism. Direct transfer of state monies to private profit centers.

    This is really a form of fascism, for the state is subsidizing criminal profit centers.

    First they let the for-profit colleges and universities fail, which was the plan all along after a good sacking of public funds.

    And of course the government subsidizes these 'free marketeers' who traffic in crisis and human lives.

    Students,workers, dispossessed and all people must rise up against this awful capitalist system which makes sausage out of humanity.

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  2. Maricata, I think your analysis is spot on.

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  3. The Art Institutes is doing a lot more than reported in this article. Until each Board of Trustee member, Managing Board members, Senior level management and each campus president is indicted on criminal charges. They will continue this pattern of behavior. We need to urge the Biden Administration to request the Attorney General in each state of the Art Institutes to launch and investigation and bring charges. Further Southern Association of Colleges and Schools (SACOCS) is also complicit in all the Art Institutes fraudulent activities. They are very much aware of the falsified documents submitted with each reaffirmation report. Let's hold SACOCS accountable too.

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    1. Please provide what we can do to get the ball rolling to aid these students and hold these scammers accountable.

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  4. Anon, can you tell me more?

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