A federal judge on Monday rejected an effort by a financially struggling for-profit college chain to effectively restructure itself and change ownership without first declaring bankruptcy or jumping through state and federal regulatory hurdles. Education Corporation of America, which operates Virginia College and Brightwood College, had asked a federal judge in Alabama to appoint a receiver to oversee its restructuring while also shielding the company from creditors and requiring the Education Department to continue to provide student aid funding to its schools.
— Federal law permanently bars any company that files for bankruptcy protection from ever receiving federal student aid funding. ECA argued that it needed the court’s help to make sure it would continue accessing federal student aid while it attempts to restructure itself.
— But the judge sided with the Education Department and DeVos, who were named as defendants in the company’s lawsuits and sought to dismiss the case. U.S. District Judge Abdul K. Kallon ruled that the for-profit college chain did not have standing to bring the case because it wasn’t alleging an actual or immediate injury. He didn’t rule on the merits of its case.
— The lawsuit, which describes the company’s financial situation as dire, has also triggered a sanction from its accreditor. The Accrediting Council on Independent Colleges and Schools said last week that the company must demonstrate why it shouldn’t remove approval for its Virginia College chain in light of its financial instability.