Student loans: Biden takes steps to hold private college leaders personally liable for unpaid debt

·3 min read

The U.S. Department of Education is flexing its muscle on student loans again.

The Department announced plans to hold owners of private colleges personally liable for student loan debts left unpaid to the federal government, two days after advocating for student loan debt forgiveness before the U.S. Supreme Court.

In guidance published Thursday, the Education Department said that, in some cases, it will block certain schools from participating in federal financial aid programs unless those who own the schools put their personal finances on the line.

Going forward, the administration said, the Education Department will decide on a case-by-case basis whether to require college leaders to assume personal liability. Those decisions will be made either when an institution’s program participation agreement is up for renewal or when it undergoes a change in ownership.

In a press release, the department said that it will require leaders that “fail to operate in a financially responsible way” to assume personal liability for unpaid federal student loan debts.

“The Department would then be able to pursue those individuals for the cost of liabilities that are not otherwise paid for by their institutions, including those stemming from closed school and borrower defense discharges,” the press release states. Alternatively, the administration said, the department may accept “other financial protections to minimize the risk of financial losses in lieu of the signature.”

(Photo: Getty Creative)
(Photo: Getty Creative)

To weigh financial responsibility, the administration said the Education Department will evaluate the extent of fraud-based litigation filed against the schools as well as settlements and disciplinary actions taken by government authorities. Significant regulatory compliance issues as well as executive compensation will also be included as factors.

“Individuals who control schools and reap substantial profits are responsible for running healthy institutions. When financially risky schools jeopardize the safety of the government's Title IV funds and take advantage of students, we intend to hold those individuals accountable," said Rich Cordray, the chief operating officer of Federal Student Aid, which manages the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965.

The administration argues that the Higher Education Act gives the Education Secretary authority to put private college owners on the hook for student borrower defaults. The claim, which has similar threads to the Biden administration’s argument that the Secretary is authorized to cancel around $400 billion in student loan debt, could face legal challenges.

The Education Department said that even before issuing its new guidance, it was vested with legal authority to require private college leaders to reimburse the government for unpaid federal student loan debt, yet lacked a practice to enforce it.

“[W]e are going to use that authority to hold them accountable, defend vulnerable students, protect taxpayer dollars, and deter future risky behavior,” the announcement states. “[T]oo often, the owners and executives of these colleges escape liability.”

The new measure comes in addition to the administration’s cancellation of student loan debt for more than a million borrowers who took out loans for now shuttered for-profit colleges. It also follows a settlement of claims that the Education Department announced last summer that would give roughly 264,000 student loan borrowers from for-profit schools approximately $7.5 billion in debt relief.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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