For-profit college chain files (for receivership)

Education Corporation of America filed a legal action in federal district court last week claiming financial distress, seeing to enjoin its creditors and restructure its debt. Sounds like Chapter 11, right? But no. ECA can't file a bankruptcy petition, because that would immediately cut off its main funding source, federal student grants and loans. ECA and its subsidiary Virginia College LLC were already facing disaster under the Obama administration's gainful employment rule, but Secretary DeVos suspended that rule giving poorly performing trade schools a new lease on life. At the same time ECA was facing loss of federal student aid because their accreditor, ACICS, was derecognized by the Education Department under the prior administration for its weak oversight of deeply flawed for-profit schools, like Corinthian College. Unsurprisingly, Secretary DeVos is reconsidering the ACICS decision as well. In a story that seems to be repeating for many for-profit colleges, and even law schools, enrollments are plummeting due to a combination of consumer information about poor student outcomes and reluctant but inevitable enforcement by accreditors and regulators. ECA's proposed plan is to close some of its schools and continue operating others. Its very creative complaint asks the court for a nationwide injunction against its landlords and creditors and appointment of a receiver, among other things.

While I am generally not in favor of bankruptcy discrimination, the ineligibilty of bankrupt colleges for taxpayer funding is eminently sensible. Given the weakness of institutional gatekeeping and the political challenges to shutting down predatory schools, and the for-profit college business model in which taxpayer grants and loans are used to prepay tuitions for students who are frequently misled about career chances, we don't need bankruptcy to give these failing schools a new lease on life.