Tuesday, July 5, 2022
HomePolicyTroubled College Owners Accountable for Losses: Education Dept.

Troubled College Owners Accountable for Losses: Education Dept.


The US Department of Education announced Wednesday that it would take steps to ensure that companies with a stake in private colleges are held financially responsible if their schools shut down or defraud students.

The new rule will ensure that taxpayers do not lose money if an institution shuts down abruptly and the government can recover the funds from entities that have a direct or indirect ownership interest in the school.

“If a company owns, controls, or profits from a college, it should also be on the hook if the institution fails students,” Under Secretary of Education James Kvaal said. “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.”

Policy Changes

The new policy states that any organization with at least a 50 percent interest in a non-public college will be held financially responsible for its financial losses. 

The New York Times reported that since the Education Department requires entities with “substantial control” over schools to sign these agreements, some private equity firms active in the for-profit education market may also be on the hook if their schools suffer financially.

The Biden administration has so far canceled over $3 billion in student loan forgiveness for borrowers who attended ITT Technical Institute, Corinthian Colleges, and other private, for-profit institutions. 

This includes February’s announcement to wipe out over $400 million in student loan debt for borrowers defrauded by for-profit schools. 

“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,” head of Federal Student Aid, Richard Cordray, said. “We will be vigilant in our oversight and enforcement of this new policy.”

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