Executives at for-profit colleges might soon be on the hook personally if their schools fail to repay costs owed to the U.S. government, according to new guidance released by the Department of Education last week.
On March 3, the Education Department outlined how it will implement “long-standing provisions” in the Higher Education Act that govern relationships with colleges. Among other things, the Act grants the Secretary of Education authority to require private-college leaders “that fail to operate in a financially responsible way” to assume personal liability for the cost of unpaid debts owed to the Department.
The guidance clarifies circumstances in which the Education Department can require certain individuals to assume personal liability as a condition of allowing schools they own or operate to participate in federal financial aid programs. It also details considerations when determining whether to require an individual to assume personal liability by signing the institution’s program participation agreement.
In such cases, the Education Department would be able to pursue those individuals for the cost of liabilities that are not otherwise paid for by their institutions — including those stemming from closed schools and borrower defense discharges.
The new guidance comes amid a broader move by the Biden administration to crack down on for-profit colleges that defraud or otherwise mislead students and to provide debt relief to students who got loans to attend the schools. It also comes as the administration faces the prospect that the federal student loan forgiveness program announced last summer will be struck down by the U.S. Supreme Court.
“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,” Education Department Under Secretary 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.”
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. Here’s what the Department will consider when determining the riskiest institutions:
- Civil or criminal lawsuits, settlements, or disciplinary or legal actions by the Department or other state or federal agencies involving federal student aid or claims of dishonesty, fraud, misrepresentation, consumer harm, or financial malfeasance.
- Significant compliance issues, such as findings stemming from program reviews or audits, unpaid liabilities from either of those processes, or findings of a lack of administrative capability.
- Executive compensation or a bonus structure that could significantly affect the financial health of the institution.
The aim is to not only protect students but also to help the government recoup money that comes through tax dollars.
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“Individuals who control schools and reap substantial profits are responsible for running healthy institutions,” said Federal Student Aid Chief Operating Officer Richard Cordray. “When financially risky schools jeopardize the safety of the government’s Title IV funds and take advantage of students, we intend to hold those individuals accountable.”
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