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The Education Department Says Owners Will Have to Pay If Their Colleges Collapse

Submitted by jhartgen@abi.org on

The Education Department says that it will hold companies that own certain private colleges financially responsible for taxpayers’ losses if their schools defraud students or abruptly shut down, the New York Times reported. “If a company owns, controls or profits from a college, it should also be on the hook if the institution fails students,” James Kvaal, the department’s under secretary, said in the announcement on Wednesday. Taxpayers have been left with billions of dollars in losses in recent years when student loans made by the government were wiped out because the students were victimized by the schools they attended. The vast majority of those losses stem from for-profit schools that have come under increasing scrutiny for their educational practices. When a college suddenly closes, stranded students can have their federal student loan debt forgiven through what’s known as a closed-school discharge. Another relief program, called borrower defense to repayment, can eliminate the federal student loan debt of students who were significantly misled by their school’s false claims. In both cases, taxpayers are typically stuck paying the tab. The department will require the new guarantees on a rolling basis, as schools sign or renew the agreements that let them receive federal student loan funds. It plans to demand them from private colleges and universities showing signs of potential distress and from those changing ownership. A series of collapses at large for-profit chains have sent claims through both relief programs soaring in recent years. Last month, the Education Department approved borrower-defense claims for thousands of students who attended DeVry University — the first time it has granted claims at a still-operating school. The department said it would try to recoup some of that cost — at least $72 million, with the bill likely to grow — from DeVry’s current owner, which bought the long-troubled school in 2018. The new policy does not guarantee that taxpayers will be repaid for future claims, however. Most investors or organizations that buy schools do so through holding companies, and if the institution implodes, the holding company is typically left with few assets.