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Education Department Says College Chain Took Advantage of Students, Cuts Off Student Loan Access

Submitted by jhartgen@abi.org on

A private, for-profit college chain with a dozen campuses across Florida and Texas will lose access to federal student aid. The move comes after an investigation by the U.S. Department of Education's office of Federal Student Aid (FSA) found the chain, Florida Career College, violated federal rules and failed to meet basic standards required to access federal loans and grants, NPR.org reported. "Federal Student Aid is holding Florida Career College (FCC) accountable for taking advantage of some of the most vulnerable students," FSA Chief Operating Officer Richard Cordray said in a statement. Unless a court intervenes, the move leaves FCC, which enrolled roughly 5,000 students late last year, facing an uncertain financial future. The overwhelming majority of its students depend on federal aid to attend. According to the College Scorecard, 97% of students at FCC's Tampa campus, for example, received federal loans; 97% also received a federal Pell grant for being low-income. FCC's business model is built on offering short-term certificate programs in fields such as HVAC, automotive technician, and dental assistant — often to students who did not finish high school. And this appears to be where FCC ran afoul of federal guidelines. In order for a student to receive federal student aid to help pay for a postsecondary certificate program without first graduating high school, they have to take a test, known as an ATB ("Ability-To-Benefit") Test. That test seeks "to determine whether a student who does not have a high school diploma can benefit from postsecondary education," according to the department's release. "Among other things, this protects students from ending up with debt they cannot afford." According to the Education Department, since 2018, nearly half of FCC's students have had to take the ATB test before qualifying for federal aid. But this testing process, according to the department, was often a sham. Federal investigators found that test administrators "routinely" broke the rules to help students pass, "including by filling in or changing answers after students finished their tests, helping students during testing or taking tests for them, and permitting students to use calculators in violation of testing rules."

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ABI President: Bankruptcy Filings Surpassed Pandemic Peak Even Before Bank Crisis Took Hold

Submitted by ckanon@abi.org on
When a public company like Virgin Orbit goes bankrupt, there is no shortage of headlines, but there’s an undercurrent happening in the bankruptcy world that isn’t getting as much attention: This year, research shows private companies are filing for bankruptcy at rates that exceed what was seen at the height of the pandemic, Straight Arrow News reported. According to UBS, a lot of bankruptcies are at smaller firms for now, so the impact on assets and employees is not as egregious as the sheer number of filings. Experts say real estate is one place that is seeing a bankruptcy boom, while health care, retail, construction, restaurant and financial sectors are areas to watch. Former bankruptcy judge and current ABI President Kevin Carey said he’s witnessed bankruptcy filings ticking up for the past couple of months. “We’ve been talking about, for a really long period of time now, for the recession to happen,” Carey said. “And so a lot of the lending is on hold. Investors don’t want to put money into a volatile economy.” He said the banking crisis is just injecting more uncertainty into an economy that was already tightening credit. The latest Fed survey found that roughly 44% of banks reported tightening standards for business loans in the first quarter of 2023. With the exception of the COVID-19 pandemic, it’s the highest share to say that since 2009 in the wake of the Great Recession. “Once liquidity runs out, companies are faced with very few choices,” Carey said, noting that many chapter 11 bankruptcies he’s seeing now are seeking a sale of the business as opposed to restructuring. “So many businesses that find their way into chapter 11 are over-levered, and businesses find themselves in a situation in which there’s just no way out but to sell the company.”

Former Owner Accused of Refusing to Leave Foreclosed Hamptons Mansion

Submitted by ckanon@abi.org on
A listing for a newly built Southampton home boasts of “dramatic floor-to-ceiling windows” and “park-like grounds” with lush landscaping just a block from the ocean, The Real Deal reported. What the $13.4 million listing doesn’t mention: The owner’s equity interest was wiped away in a foreclosure in February, and now his lender wants permission to kick him out and sell the home in a bankruptcy auction. The lender, an entity apparently tied to Miami-based distressed investor Lakeport Capital, claims that one of the home’s former owners, Mark Gallagher, is trespassing by continuing to live there after the foreclosure.  The 10,000-square-foot Cape Cod-style home, which is actively listed, has been thrust into the convoluted world of bankruptcy, adding to Gallagher’s growing legal battles surrounding the shiny new mansion. In February 2020, hard-money lender 5 Arch Funding Corp. provided Gallagher with $5.8 million in financing for the project, consisting of a $3.3 million senior loan and a $2.5 million building loan. The consolidated loan was personally guaranteed by Gallagher and his wife, Nicole. The next year, creditors and lenders began coming after the couple. Blue Sky Ltd., an anonymous company based in the Cayman Islands that acquired the debt, alleged that the Gallaghers had defaulted in October 2021 and initiated a Uniform Commercial Code foreclosure. On Feb. 17, Blue Sky won the auction with a credit bid using its existing debt. As a result, it took over the equity interests in the LLC that owned the home. Late last month, the new owner filed for bankruptcy, allowing the LLC to restructure, and hired David Goldwasser as the restructuring officer. The bankruptcy petition lists Jean-Marc Orlando, founder of Lakeport, as the sole owner of the debtor entity. The petition claims the property has $12.3 million in liens, which is close to its value. In a separate lawsuit in federal court, Mark Gallagher is seeking a temporary restraining order to stop the new owner from removing him from the property. His attorney alleges the interest rate used for the secured loan is higher than 25 percent and criminally usurious.