THE BLOG
01/14/2013 03:42 pm ET | Updated Mar 16, 2013

For-Profit College Shuts Down, Leaving Students Out in the Cold

A for-profit college suddenly shut down all its campuses last week, leaving Massachusetts and Maryland students out in the cold.  The owner of the company, American Career Institute (ACI), told me today that the business is closed for good because its lenders forced it to shut.  Although we don't know all the facts yet, ACI's abrupt demise appears to be another window into how lax standards in the for-profit college industry can harm students and taxpayers.

On January 9,  ACI sent a letter informing students that, due to financial problems, all of its campuses would close immediately.  ACI had campuses in Columbia, Silver Spring and Baltimore, Maryland, as well as Springfield, Cambridge, Braintree, Framingham and Woburn, Massachusetts. It featured programs in web design, gaming design, computer network administration, and medical and dental assisting.

Marylander Michael Liska was supposed to graduate in August from a two-year digital media program at the school. His mother told WTOP radio, "We were looking forward to a new career for him."  He owes more than $20,000 in student loans. "Not to have any warning that this is happening, what they've done is truly horrible," she said.

"It's like a knife through your heart," a student, Mim Pierre, told WHDH Boston. "It's like yesterday you wake up, you have class, you have homework, you have finals. Then the next day you wake up and there's no more school."

Massachusetts Attorney General Martha Coakley has opened an investigation into ACI's closing.

ACI has shut down its phone number and website, making it more difficult for students to obtain information about how to put their lives back on track. (You can view an archived version of the website here.)

I located ACI owner and CEO Andree Fontaine, and we spoke by phone. Fontaine, who has operated the business through its 15-year history, insists she did her best to provide quality education and to keep the school operating.  She says the school was making a difference, helping students who couldn't succeed elsewhere. Fontaine argues that declining enrollment at her campuses was mostly the result of increasing reluctance by students to borrow money in a bad economy.  She continued to retain most of the staff even as "enrollments got soft."  Fontaine says ACI was "forced to close due to unanticipated inability to access additional credit from the school's lenders."  She says "there are bad schools out there" in the for-profit college sector. "But we weren't bad. We did everything we could."  She says she is making herself available to students and working for solutions to allow them to continue their educations elsewhere.

But often credits at for-profit colleges are not recognized by and transferable to other schools, so the former ACI students may face challenges.

Fontaine was one of many for-profit college executives who tried to prevent efforts by the Obama Administration to tighten accountability standards for the industry. In a 2010 letter to the U.S. Department of Education, Fontaine urged the administration not to move ahead with its proposed "gainful employment" rule, which would cut off federal student aid to schools that, through high-priced, low-quality programs, consistently left students with insurmountable debt. Fontaine claimed that the rule would threaten her school, which she  said was providing valuable services: "Our employees are vested in our students needs... One only need visit one of our campuses to see the care and attention given to our students."

The gainful employment rule was issued by the Obama Administration in 2011, but only after it had been heavily watered down under pressure from for-profit college industry lobbyists, including through their trade association APSCU (then called the Career College Association).  APSCU submitted Fontaine's letter to the Department of Education. The rule has never gone into effect, because APSCU has sued in federal court, so far successfully, to block it.

So ACI cannot blame its failure on new regulations. Rather, it may have been undermined in part by the factor cited by Fontaine -- the reluctance of students to borrow -- and perhaps also by two other factors: (1) increasing public awareness, which eventually reached prospective students, that many for-profit colleges are good at recruiting students and depositing their financial aid checks but bad at educating them, and (2) an overly permissive regulatory environment that allowed schools to overreach.

ACI was growing fast. It reported revenues from federal financial aid of $6.5 million in 2009-10, but that figure more than quadrupled in a single year, growing to $26.9 million in 2010-11. Even as the school's lender was closing in in recent weeks, ACI was announcing the launch of a new dental assistant program in Maryland (December 27) and a nursing aid program in Massachusetts (January 3). Fontaine also served as CEO of  Advanced Career Technologies (ACT), a related career training and job placement business that attracted private equity investment.  And while Fontaine has said her school is more reasonably priced than many for-profit schools, tuition was still high, for example $15,000 for a 9-month medical assistant certificate, a level of cost that had the potential to leave students with too much debt.

Even a well-intentioned owner, who sincerely wanted to help students, could have been enticed to grow too fast by a federal system that offers a seemingly endless flow of taxpayer-funded financial aid dollars with few accountability standards. The problem is that, when these enterprises fail, the losers are not just the businesses and their employees; there are also the taxpayers left to cover defaulted student loans, and, of course, the students who have invested their fortunes and their time in hopes of building better futures for themselves, but are left locked out, their dreams shattered.

The well-paid lobbyists and lawmakers -- Republicans and Democrats -- who have blocked necessary rules for the for-profit college sector should be ashamed of themselves. We need to reform this industry promptly, before more lives are ruined.

This article also appears on Republic Report.