Leaders of private for-profit colleges have largely skirted liability for student loan crisis

Leaders of private, largely for-profit colleges that don’t operate responsibly will be personally liable for their contributions to the student loan debt and default crisis, the Education Department said Thursday 

For-profit colleges have faced scrutiny for decades, including over their predatory practices and targeting of veterans, abuse of public funding and high percentages of students who leave unable to pay off their debt. 

Several for-profit colleges shuttered suddenly in recent yearsafter their ability to enroll new students who rely on federal student aid was cut off. Thanks to various settlements, borrowers who attended these schools, such as ITT Tech and Corinthian Colleges, potentially qualify for loan forgiveness. Hundreds of thousands of these borrowers have already had billions in student loan debt erased. 

But little has been done to hold the colleges’ executives accountable for their behavior. Now, the department says it’s time for the people who run predatory institutions to pay up.

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“Too often, the owners and executives of these colleges escape liability,” 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.”  

As NPR reported, concerns about the role of leaders in fostering these practices trace back to the 1990s. Amid revelations that for-profit trade schools were producing significant rates of loan defaults, Congress passed a law allowing the education secretary to make these leaders pony up.  

ITT Tech students to get $4 billion in federal loan forgiveness: What borrowers should know

But the Education Department’s emphasis until recently has been on helping borrowers rather than going after executives. When Corinthian collapsed, for example, it was the Securities and Exchange Commission that ended up punishing leaders for their harm to shareholders. With salaries in the multiple millions, the executives were hit with relatively small fines.

Because the leaders hadn’t signed agreements confirming their institutions’ participation in the student loan program, the department said it had no way of holding them accountable. Last year, per POLITICO, Kvaal wrote a letter to one Democratic congressman explaining: “There is no clear path to collect liabilities from entities or individuals associated with the shuttered institutions.”

More to come:Millions of borrowers have had billions in student loan debt erased. Here’s how.

Officials to focus on ‘risky’ for-profit colleges, executives

The guidance released Thursday aims to clarify the grounds and means by which the for-profit executives will be held personally liable.

The department says it will focus on leaders at the “riskiest” institutions – those that receive tens or hundreds of millions of financial aid funding each year yet are, for example, involved in lawsuits or compliance proceedings. It will also go after executives with questionable salary or bonus structures. 

“Individuals who control schools and reap substantial profits are responsible for running healthy institutions,” said Rich Cordray, the chief operating officer of Federal Student Aid. “When financially risky schools jeopardize the safety of the government’s (financial aid) funds and take advantage of students, we intend to hold those individuals accountable.”

The development comes days after the U.S. Supreme Court heard arguments in two cases challenging Biden’s student loan forgiveness plan. The plan would provide to relief for a much broader array of borrowers beyond efforts focused on specific groups.

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Contact Alia Wong at (202) 507-2256 or awong@usatoday.com. Follow her on Twitter at @aliaemily.