Education Department moves to make leaders of failing private colleges personally liable for unpaid government debts

The Education Department announced Thursday it is implementing formal guidance to determine when leaders of failing private colleges would be personally liable for unpaid government debts. 

Officials said under the authority of the Higher Education Act (HEA), the department can make leaders of private colleges that are failing “to operate in a financially responsible way to assume personal liability” if there are unpaid debts owed to the government. 

The new measure enacts certain criteria to be used when determining if leaders deserve to be held personally liable for the debt, according to an announcement from the agency. 

They listed three main factors to determine personal liability for unpaid debts: if there was any previous legal action against the institution for not following federal student aid rules, if there were previous concerns of major compliance issues with the college or if compensation for executives at the school has hurt the finances of the institution. 

The agency “anticipates” they will enforce personal liability on individuals from private colleges “that pose the largest financial risk to the United States.”

The department said the authority to implement these actions is under a “long-standing provision” of the HEA but the agency “did not have a practice” for enforcing it previously. 

Making the individuals personally liable would allow the government to charge them with liabilities not paid for by the private college they represent such as school closures or student loan borrower defense discharges. 

The agency gives borrower defense discharges to students who have been defrauded by their institutions. 

An example includes the Department of Education saying it would discharge millions of dollars in student loans for those who went to Corinthian College after the school was found to have lied about job placement rates and the ability to transfer credits.

“The Biden-Harris Administration is canceling the loans of more than a million borrowers cheated by for-profit colleges,” Under Secretary of Education James Kvaal said. “But too often, the owners and executives of these colleges escape liability.”

“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,” he added.

This is just one of several actions taken by the federal government to go after institutions that aren’t providing financial benefits to their students.

In January, the department introduced a regulatory proposal that would allow it to make a list of colleges where students are burdened with high costs of debts with little financial value.