Dive Brief:
- Six Democratic senators sent a letter Tuesday urging the U.S. Department of Education to hold for-profit college owners personally liable when their institutions mislead students and saddle them with debt.
- The letter was signed by prominent lawmakers, including Elizabeth Warren, from Massachusetts, and Cory Booker, from New Jersey.
- They argued that for-profit college executives should be on the hook financially for student loan discharges granted under the borrower defense to repayment regulation, which forgives the loans of students defrauded by their colleges.
Dive Insight:
The letter comes as the Biden administration has been busy clearing backlogs of borrower defense claims.
In June, the Education Department announced it was discharging $5.8 billion in student loans held by borrowers who attended Corinthian Colleges, a for-profit chain that shut down in 2015. Only a couple months later, the agency said it would wipe out $3.9 billion in debt for borrowers who attended ITT Technical Institute and $1.5 billion for those who enrolled at Westwood College — both of which were for-profit chains that collapsed in 2016.
But the lawmakers contend these actions haven’t gone far enough. They point to Corinthian Colleges, which paid nearly $1 million in bonuses to executives only weeks after the Education Department strengthened oversight of the company and less than a year before the chain went under.
The letter argues that the Education Department has the legal authority to recoup funds related to borrower defense discharged by holding for-profit executives personally liable. However, the department has never publicly exerted this authority, according to the lawmakers.
“When owners and executives are not held personally accountable, they continue to take home large profits as students and taxpayers end up holding the bag,” they wrote.
Nicholas Kent, chief policy officer at Career Education Colleges and Universities, a group representing for-profit schools, said in an emailed statement Wednesday that all higher education institutions should be held responsible when they violate laws and mislead students.
“But the ability to hold executives personally responsible for funds their institutions owe is limited under existing law,” Kent said. “These Senators are inappropriately pressuring the Department to change the rules governing personal responsibility in American corporate law to furtherance their campaign against private career schools.”
The Education Department didn’t provide a statement by publication time.
The agency took steps this past spring to make it easier to recoup loan discharge costs. In March, the agency announced it will hold firms that own certain private colleges financially liable if they defraud students or close without warning.
The policy shift will affect any entity that holds at least a 50% stake in a private institution by requiring it to sign the college’s program participation agreement, which details the conditions for accessing federal financial aid. However, James Kvaal, the Education Department’s top higher education official, argued at the time that the agency could not go a step further and hold individual executives personally liable because it had not required them to sign these documents.
“As a result, there is no clear path to collect liabilities from entities or individuals associated with the shuttered institutions,” he wrote in a letter to Rep. Bobby Scott, a Democrat from Virginia and chair of the House Education and Labor Committee. Scott had also requested that the department hold executives personally responsible.
But the lawmakers disagree with Kvaal, arguing in the Tuesday letter that federal law does not state that program participation agreement signatures are required to hold for-profit college owners or other executives personally liable.
They asked the Education Department to provide information about the total loss the federal government has incurred from debt discharges related to seven higher education institutions, including Corinthian Colleges, DeVry University and Kaplan Career Institute.
They also asked the department how much of those costs have been recovered from executives, as well as for an explanation of the department’s position that it lacks legal authority to recoup money from those individuals.
“Personal liability is designed to deter future misconduct,” they wrote. “When former owners and executives walk away unscathed, they are incentivized to prey on students and taxpayers in the future.”
Clarification: This article was updated to attribute a statement from CECU to Nicholas Kent.
