U.S. Department of Education Announces Steps to Hold Institutions Accountable for Taxpayer Losses
The U.S. Department of Education (Department) today announced updated steps to ensure that companies that own institutions are held responsible for funds owed to the federal government, including liabilities arising from closed school loan discharges and borrower defense to repayment claims. This will ensure that even if a school closes, the Department can recover funds from entities that had a direct or indirect ownership interest in the school instead of leaving the bill to taxpayers. These new procedures will protect taxpayers, students, and borrowers through incentivizing better performance by the schools and allowing the Department to recover liabilities from corporate owners.
“If a company owns, controls, or profits from a college, it should also be on the hook if the institution fails students,” said Under Secretary of Education James Kvaal. “Today’s steps will ensure taxpayers aren’t held liable for colleges that fail their students or close their doors, especially without the opportunity for students to finish their courses of study.”
Under this policy, any organization or entity with at least a 50 percent interest in a non-public college that meets certain other conditions will generally join that institution’s leadership in signing the school’s Program Participation Agreement (PPA). The additional signature will be required in cases where the institution has not met financial responsibility requirements, where the school is provisionally certified to participate in the federal financial aid programs, and for schools with significant liabilities for borrower defense or other findings, among other circumstances. This approach will also apply when a group of related owners together hold at least a 50 percent interest. Private colleges will be required to obtain the additional signature(s) when their PPAs are recertified or when undergoing a change in ownership.
“Too often the Department has seen those who reap the rewards of colleges’ actions when things go well leave us holding the bag when things go badly,” said Richard Cordray, head of Federal Student Aid. “We will be vigilant in our oversight and enforcement of this new policy.”
The additional signature(s) will ensure that sole or controlling entities—and not just their defunct institutions—are held responsible for losses to taxpayers when institutions close. These signatures will help to avoid the substantial losses taxpayers have shouldered when colleges close.
College closures have left many students academically stranded, often bearing debt for an education they were unable to complete or that did not live up to the school’s promises. The Biden-Harris Administration is also taking steps to ensure that students are better protected in the event of school closures. Since the start of the Administration, the Department has granted $3.2 billion in closed school and borrower defense discharges to borrowers who attended ITT Technical Institute, Corinthian Colleges, and other institutions. In February 2022, the Department announced the first approved borrower defense claims against an open institution, DeVry University, and it will seek to recoup the costs of the discharges from DeVry. Through these and other actions the Department has approved over $17 billion in targeted loan debt for more than 700,000 borrowers.
The Department is also engaged in rulemaking on a variety of issues related to affordability and student loans, including proposals to expand access to closed school discharge and borrower defense, and on institutional and programmatic eligibility. Additionally, the Department reestablished the Office of Enforcement within Federal Student Aid to investigate and take action against institutions that pose widespread risks to students and taxpayers.