student loan debt, Student Loans

Former For-Profit College Operator Settles Bankruptcy Case with Department of Education

A settlement was reached between former for-profit college operator, FCC Holdings Inc., and the U.S. Department of EducationThe $8 million settlement is part of the company’s bankruptcy case and signifies the end of years of legal battles 

FCC Holdings formerly operated 41 for-profit colleges under various names. Before filing for bankruptcy, FCC Holdings sold 14 of their for-profit colleges to another company, International Education Corporation (IEC). IEC still operates 11 of these campuses in Florida and Texas under the name of Florida Career Colleges.

The Department of Education cut off FCC Holdings’ access to federal financial aid funds because of their finding that the schools were predrawing aid based on unsubstantiated enrollment projections. They had demanded FCC Holdings show proof that they had disbursed all of this financial aid money or return any excess. According to their review of FCC Holdings records, the excess owed was over $15 million. FCC Holdings relied on federal funding for 90 percent of its revenue. Without the money, the school was forced to shut down.  

The students attending FCC Holdings-owned colleges soon found themselves no longer eligible to receive financial aid as a result. The company quickly closed campuses in Wisconsin, New Jersey, Minnesota, and a few other states, leaving many of its students with a lot of debt and little to show for it.  

FCC Holdings has been in a legal battle for several years with the Department of Education over the issue of their pre-drawing of federal financial aid money based on fake enrollment projections. The claim made by the Department of Education was originally in the amount of $37 million. Approximately $32 million was owed back by FCC Holdings for Pell Grants issued for the 2013-14 academic year. The Department of Education claims these Pell Grants were issued for students who were never enrolled.  

The liquidating trustee appointed for the for-profit entity claimed that not all that money should be returned since many of the for-profit colleges enrolled students who were eligible for Pell Grant assistance. They argued that forcing them to return all the money, including the amounts issued for enrolled students would not be fair. 

The Department of Education filed a claim officially as an unsecured creditor in FCC Holding’s bankruptcy case. They worked with the liquidating company for many years before coming to the $8 million settlement amount.   

Clingman & Hanger had already paid out claims made by secured creditors in the amount of $45 million. The amount that will end up being paid to their unsecured creditors is roughly 8.2 cents for every dollar of claims made by unsecured creditors, which comes out to nearly 1,000 claims. The list of unsecured creditors includes the Department of Education, as well as employees, trade vendors, landlords, and a handful of students. Unsecured creditors who failed to settle ran the risk of receiving significantly less than what was offered.  

While the unsecured claim distribution amount seems low, it is higher than what is normally seen in similar cases. Arguably, the Department of Education wanted more than the $8 million that was offered, but the amount is better than what could have been paid without the settlement. 

The law firm representing the liquidation company, sued several of FCC Holdings’ top executives, naming the chief financial officer and the chief compliance officer, among others, for payment of the claims owed. The suit alleged that these executives knew about the company’s false practices and willfully let them continue. This lawsuit concluded in 2018, and Amini was able to recover nearly $15 million from the executives’ insurance policies. However, the settlement did not include any admission on their part of wrongdoing.   

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