Dream Center Education Holdings Enters Receivership, Art Institutes Collapse Leaves Thousands Stranded, $16 Million in Student Aid Disappeared

Dream Center Education Holdings (DCEH), a California-based religious nonprofit with no prior experience operating colleges, entered receivership on January 18, 2019, less than two years after acquiring the Art Institutes, Argosy University, South University, and Western State College of Law from the collapsed for-profit giant Education Management Corporation (EDMC) in a 2017 transaction that converted over 100 for-profit campuses enrolling more than 26,000 students into purportedly nonprofit institutions. The abrupt collapse came after Dream Center failed to disburse approximately $16 million in federal student aid living stipends to thousands of students in early 2019, leaving students unable to pay rent and facing eviction; after closing 23 Art Institute campuses in December 2018 with minimal notice; and after concealing for six months the loss of accreditation at four Art Institute campuses, violating requirements to immediately notify students of accreditation changes. Congressional investigators found that Trump Administration Education Department officials had worked behind the scenes to help Dream Center evade responsibility for the failures, had approved the conversion despite obvious red flags that Dream Center lacked the capacity to operate large educational institutions, and had facilitated a regulatory arbitrage scheme where failing for-profit colleges could escape accountability by converting to nonprofit status while continuing predatory operations under new ownership.

The Dream Center acquisition of EDMC’s schools in October 2017 had been marketed as a rescue of institutions that had been damaged by the for-profit stigma and regulatory pressure following EDMC’s 2015 fraud settlement. Dream Center—primarily known for operating homeless shelters and substance abuse programs in Los Angeles—positioned itself as a mission-driven nonprofit that would reform the schools and focus on student success rather than profit maximization. The conversion to nonprofit status was supposed to allow the schools to operate free from the heightened regulatory scrutiny that for-profit colleges faced, while qualifying for various benefits available only to nonprofits including potential access to tax-exempt bond financing and exemption from certain state regulations. However, the conversion was fundamentally a regulatory arbitrage scheme designed to allow EDMC to unload failing assets while avoiding accountability for the schools’ problems, and to allow the schools to continue operating with federal student aid despite having no viable business model and no capacity to serve students effectively.

The problems began almost immediately after Dream Center took control of the schools. Within two months of the acquisition, Dream Center discovered that “actual revenues” at the acquired schools fell drastically short of the financial projections that EDMC had provided prior to the sale. While EDMC had represented that the schools would generate a $30 million surplus in 2018, Dream Center instead found itself facing a $38 million operating loss for 2018 and projected operating losses of $64 million in 2019 and $69 million in 2020. These massive financial shortfalls indicated that EDMC had either grossly misrepresented the schools’ financial condition during sale negotiations or that the schools’ business model had collapsed so rapidly that even recent financial projections became obsolete within months. Either way, Dream Center had acquired institutions that were financially unsustainable and was not equipped with the expertise or resources to address the fundamental problems.

Even more concerning were accreditation issues that Dream Center either failed to discover during due diligence or discovered but proceeded with the acquisition anyway despite knowing the problems. In January 2018, just three months after the Dream Center acquisition closed, four Art Institute campuses—in Novi, Michigan; Denver, Colorado; Chicago, Illinois; and Schaumburg, Illinois—lost their accreditation with the Higher Learning Commission (HLC). Loss of accreditation is devastating for a college because it means students cannot receive federal financial aid, credits typically cannot transfer to other institutions, and degrees lose recognition and value. Under federal law, schools are required to notify currently enrolled students immediately when accreditation is lost, since students need this information to make informed decisions about whether to continue enrollment at an institution that can no longer offer federal aid or recognized credentials.

However, Dream Center did not inform students at the four campuses that accreditation had been lost in January 2018. Instead, the schools continued enrolling students and accepting federal student aid for months while concealing the accreditation loss. Students were not notified until June 2018—five months after the accreditation loss—and even then the notification came only because the Department of Education required it after discovering the concealment. By that time, hundreds of students had enrolled or continued enrollment at unaccredited campuses under the false belief that they would receive federal aid and earn recognized credentials, when in fact they would receive neither. The five-month delay in notification denied students the information they needed to protect their interests and appeared designed to extract several more months of enrollment and tuition revenue before students discovered the programs were worthless.

Congressional investigators would later obtain emails and documents showing that Dream Center executives knew about the accreditation loss but deliberately decided to conceal it from students. House Education and Labor Committee Chairman Bobby Scott released findings that “Dream Center executives knowingly deceived students about the loss of accreditation at four Art Institute campuses.” The concealment appeared to be motivated by concerns that truthful disclosure would trigger mass student departures that would devastate enrollment and revenue at a time when Dream Center was already facing catastrophic financial losses. Rather than honestly informing students and allowing them to make informed decisions, Dream Center chose to prioritize short-term revenue extraction over student interests, continuing the predatory practices that had characterized the schools under EDMC’s for-profit ownership.

In December 2018, Dream Center announced it would close 23 Art Institute campuses at the end of the year, giving students and staff minimal notice. The closures affected thousands of students who were mid-program and who faced the choice of attempting to transfer to other institutions—often finding that other schools would not accept Art Institute credits—or abandoning their studies after investing months or years and tens of thousands of dollars in tuition. Many students had borrowed extensively to attend the Art Institutes based on promises about program quality and career outcomes that Dream Center knew could not be fulfilled given the schools’ financial and accreditation problems. The abrupt closures left those students with debt but no credentials, exactly the outcome that the Dream Center acquisition had supposedly been designed to prevent.

The most immediate and devastating harm came in January 2019 when thousands of students attending Dream Center schools including Argosy University, the Art Institutes, and Western States College of Law did not receive federal student aid living stipends that should have been disbursed at the beginning of the term. These living expense stipends—typically several thousand dollars per student per semester—were crucial for many low-income students to pay rent, buy food, and cover basic living expenses while attending school. Students relied on receiving these funds in January to pay rent for the spring semester, and when the funds did not arrive, many faced immediate housing crises.

Students reported being unable to pay January and February rent, facing eviction notices, having utilities shut off, being unable to buy food, and experiencing severe financial hardship. Some students became homeless when they were evicted and could not afford new housing. Others had to drop out of school to take on full-time work to survive. Many turned to high-interest payday loans or credit cards to cover basic expenses, incurring additional debt at predatory interest rates because Dream Center had failed to disburse the federal aid that students were entitled to receive. The psychological trauma of facing sudden homelessness and financial crisis while trying to attend classes and complete degree requirements was devastating, with many students reporting anxiety, depression, and inability to focus on studies due to the manufactured crisis.

The total amount of federal student aid that Dream Center failed to disburse was approximately $16 million affecting thousands of students across its schools. Dream Center claimed that it had applied for federal funds and was waiting for the Department of Education to approve and disburse the money, but congressional investigators found that Dream Center had mismanaged the aid application and disbursement process, had failed to meet requirements for receiving funds, and bore responsibility for the failure rather than the Department. The fact that a purportedly nonprofit institution would withhold federal aid from low-income students, creating immediate crises of homelessness and hardship, revealed that the nonprofit conversion had not changed the fundamental predatory character of the institutions—they continued to prioritize institutional financial interests over student welfare exactly as they had under for-profit ownership.

The January 18, 2019 receivership filing came after Dream Center determined it could not continue operating the schools without additional capital that it could not obtain. The receiver, appointed by a California state court, was tasked with managing the schools’ wind-down and attempting to find buyers for campuses that could be salvaged or arrange teach-outs for students to complete programs. However, the receivership process was chaotic, with many students receiving conflicting information about whether their campuses would close, whether they could transfer, and whether they would receive the living expense aid they were owed. The Department of Education eventually made emergency payments to cover some of the missing student aid, but many students had already suffered evictions and financial crises by the time belated payments arrived.

Congressional investigators, led by House Education and Labor Committee Chairman Bobby Scott, uncovered evidence that Trump Administration Education Department officials had inappropriately assisted Dream Center and had approved the EDMC-to-Dream Center transaction despite obvious red flags that should have prevented approval. The investigation found that the Department had waived normal due diligence requirements, had failed to require adequate financial assurances that Dream Center could operate the schools, and had worked with Dream Center to structure the transaction in ways that avoided triggering regulatory requirements that would have applied to the change in ownership and control. Emails obtained by the committee showed Education Department officials offering advice to Dream Center about how to minimize regulatory scrutiny and avoid oversight requirements, essentially coaching Dream Center on regulatory evasion rather than protecting students through robust oversight.

The Dream Center case exposed the fundamental fraud in for-profit to nonprofit conversions that were proliferating during this period. Several large for-profit college chains sought to convert to nonprofit status or to be acquired by nonprofits, claiming that the conversions would allow them to focus on educational mission rather than profit. However, these conversions were primarily regulatory arbitrage schemes designed to escape the heightened scrutiny and accountability requirements that for-profit colleges faced following the Corinthian and ITT collapses. By converting to nonprofit status, schools could avoid regulations like the gainful employment rule that applied only to for-profit institutions, could avoid the 90/10 rule requiring for-profit colleges to obtain at least 10 percent of revenue from non-federal sources, and could present themselves as mission-driven organizations even while continuing predatory practices.

The Dream Center conversion illustrated that nonprofit status meant nothing without genuine nonprofit governance, mission, and accountability. Dream Center operated the schools in essentially the same manner as EDMC had operated them as for-profit institutions—maximizing revenue, cutting costs, concealing problems from students, and prioritizing institutional survival over student interests. The only difference was that instead of profits flowing to EDMC shareholders, the revenue flowed to Dream Center to cover operating losses and to repay the acquisition debt. Students received no benefit from the conversion, and in fact received worse treatment as Dream Center lacked even the minimal educational expertise that EDMC had possessed and made decisions that were even more harmful to students than EDMC’s fraudulent for-profit operations had been.

The regulatory failures that allowed the Dream Center disaster were multiple and interconnected. The Department of Education approved the change in ownership and control despite Dream Center having no track record operating colleges, no demonstrated financial capacity to sustain the schools, and no educational expertise. The Department waived or failed to enforce requirements that would have protected students, apparently prioritizing keeping the schools operating with federal aid over ensuring student protection. The accreditors failed to enforce immediate student notification requirements when accreditation was lost, allowing Dream Center to conceal the loss for months. State regulators failed to scrutinize the transaction or to impose conditions that would have protected students in their states. The result was a perfect storm of regulatory failure that enabled catastrophic harm to thousands of students.

The Trump Administration’s role in facilitating the Dream Center disaster reflected the broader pattern of regulatory capture where Education Department officials under Betsy DeVos systematically prioritized for-profit and converted-nonprofit institution interests over student protection. Former for-profit college executives serving in senior Education Department roles had financial and career interests in maintaining a permissive regulatory environment for the sector, and the Dream Center approval demonstrated the consequences of allowing industry insiders to make regulatory decisions affecting their former industry. The Department’s behind-the-scenes assistance to Dream Center contrasted sharply with the Obama Administration’s aggressive enforcement actions against EDMC that had led to the fraud settlement and the eventual sale to Dream Center—the Trump Administration essentially reversed course and helped the same institutions escape accountability under new ownership.

For students, the Dream Center collapse was devastating not only because of the immediate harms—missing aid, evictions, closures—but also because of the betrayal of the promise that the nonprofit conversion represented. Many students had enrolled or remained enrolled specifically because they believed the Art Institutes and Argosy were reforming under nonprofit ownership and would provide the quality education that for-profit EDMC had failed to deliver. The discovery that the nonprofit conversion was a sham, that the same predatory practices continued, and that if anything the schools were even more unstable and harmful under Dream Center than under EDMC, constituted a profound betrayal of trust that would make students skeptical of all nonprofit claims and of all institutional reform promises.

The broader implications of the Dream Center collapse extended to policy debates about for-profit to nonprofit conversions. The case demonstrated that conversions could not be allowed to proceed simply based on the new owner claiming nonprofit status—there needed to be meaningful scrutiny of whether the conversion would actually benefit students, whether the new owner had capacity to operate the schools effectively, whether the conversion was structured to ensure genuine nonprofit governance rather than continuing for-profit incentive structures, and whether adequate financial assurances were in place to protect students if the converted institution failed. The Obama Administration had proposed regulations to impose such scrutiny on conversions, but the Trump Education Department blocked those regulations, allowing the Dream Center disaster to proceed unchecked.

The Dream Center case also demonstrated the importance of rapid regulatory response when student harm becomes evident. The signs of Dream Center’s failure—the concealed accreditation loss, the massive financial losses, the campus closures—were evident months before the receivership and the missing student aid crisis. Had regulators intervened aggressively when these warning signs emerged, requiring Dream Center to arrange teach-outs or orderly closures with adequate notice to students, much of the harm could have been prevented. Instead, regulators allowed Dream Center to continue operating despite mounting evidence of failure, apparently hoping the institution would recover or that problems would resolve themselves, ultimately maximizing student harm when collapse became inevitable.

In 2022, the Art Institutes and Argosy University were included among 153 institutions in the Sweet v. Cardona settlement and related borrower defense approvals for widespread fraud. Former students received student loan cancellation based on findings that the schools had engaged in substantial misconduct both under EDMC’s for-profit ownership and under Dream Center’s nonprofit ownership. However, the loan cancellation came years after the harm, after many students had already defaulted, suffered credit damage, and experienced the trauma of the missing aid and abrupt closures. The relief was necessary but inadequate to make students whole or to compensate for the years of financial and psychological hardship that preventable regulatory failures had allowed.

The Dream Center collapse stands as one of the clearest examples of how for-profit to nonprofit conversions can be used to escape accountability while continuing predatory practices, how regulatory capture under the Trump Administration facilitated student harm, and how inadequate oversight allowed preventable disasters that devastated thousands of students while enriching no one—even Dream Center itself suffered massive losses, suggesting that the entire transaction was a failure for everyone except EDMC which successfully offloaded failing assets and avoided ongoing liabilities. The case illustrated that institutional form (for-profit versus nonprofit) matters less than institutional practices, governance, and accountability, and that conversions designed primarily for regulatory arbitrage rather than for genuine mission change are likely to harm students regardless of the tax status of the owner.