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- The Education Department released new guidance to hold executives of for-profit colleges financially liable for unpaid costs to the government.
- When a school shuts down or is accused of fraud, taxpayers or students often pay the costs.
- The new guidance would determine the riskiest schools by considering existing criminal or civil lawsuits and settlements, among other things.
President Joe Biden's Education Department doesn't want to let executives of for-profit colleges that cause student debt to surge off the hook.
Last week, the Education Department released new guidance on implementing the Education Secretary's authority to hold executives of private colleges financially liable for the cost of unpaid debts defrauded students took on. When a school shuts down or is found to have engaged in fraudulent behavior, taxpayers and students often deal with the costs in the form of student debt or other sums owed to the federal government.
Currently, there is no practice to hold executives of those schools accountable for those costs — and the new guidance is intended to put a rule in place to make that happen.
"The Biden-Harris Administration is canceling the loans of more than a million borrowers cheated by for-profit colleges. But too often, the owners and executives of these colleges escape liability," Under Secretary of Education James Kvaal said in a statement. "Congress gave the Department the authority to make college owners and operators personally responsible for these losses in certain circumstances and we are going to use that authority to hold them accountable, defend vulnerable students, protect taxpayer dollars, and deter future risky behavior."
According to the press release, the guidance would require "an individual to assume personal liability on behalf of the institutions or groups of affiliated institutions that pose the largest financial risk to the United States," including schools that receive funding through federal financial aid each year. When determining what the riskiest institutions are, the department will consider:
- Existing civil or criminal lawsuits, settlements, or disciplinary actions by the government involving claims of fraud
- Compliance issues or unpaid liabilities stemming from audits
- And a compensation structure for executives that could "significantly affect the financial health of the institution."
For years, some Democratic lawmakers have been pushing for executives to be on the hook for behavior that caused students to take on more debt than they could afford to pay off. In 2021, top Democrat on the House education committee Bobby Scott told Education Sec. Miguel Cardona that taxpayers should not be responsible for costs of a defunct school.
"Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs," Scott wrote.
Federal Student Aid Director Richard Cordray later said that he "absolutely" agreed with Scott.
"More needs to be done to prevent people from abusing these student aid programs, from cheating taxpayers, from cheating students," he said at the time.
The department said it will evaluate costs for top executive on a case-by-case basis going forward. It has also taken other actions over the past year to help borrowers who believe they were defrauded by the school they attended by approving large batches of borrower defense claims, which are claims borrowers can file if they believe their school engaged in fraud, and if approved, their student debt would be discharged.
Over the summer, the department approved the largest group discharge to date for students who attended now defunct for-profit chains ITT Technical Institute and Corinthian Colleges.