By: Corey Turner
When colleges defraud students, should the government go after school executives?
In a shocking investigation, the U.S. Senate declared the federal student loan program "plagued by fraud and abuse." Its report heaped scorn on for-profit trade schools for serving 22% of federal student loan borrowers but accounting for 44% of defaults.
"The school keeps the student aid money ... and the student is left holding the bag with a poor credit rating, no job and no income to repay the student loan," U.S. Rep. Marge Roukema, R-N.J., declaimed in her crusade against for-profit "bad apples."
This clamor for accountability erupted back in 1991, more than two decades before the epic collapses of Corinthian Colleges and ITT Technical Institute cost students and taxpayers millions of dollars in wasted loans and worthless degrees. More recently, in February, the U.S. Department of Education announced it would erase more than $70 million in student loans for former DeVry University students who had been misled by the school's false advertising.
Believe it or not, back in 1992, in response to all this hand-wringing about for-profit colleges, Congress gave the education secretary a nuclear option: the power to hold leaders of fraudulent colleges — including executives and investors — personally liable for their wreckage. The problem is that 30 years later, the department has yet to use that power.
Now, some lawmakers, higher education experts and department officials argue: It's time.
Advocates say the Education Department has an obligation to hold school leaders liable
The point of holding the owners of fraudulent schools personally liable for student and taxpayer losses is twofold: to give the government another way of recouping those losses and, just as important, to discourage the future sale of education snake oil by shaming the sellers.
If ever the department could have — and arguably should have — used this power, student loan experts tell NPR, it was after the historic collapses of Corinthian and then ITT Tech.
That's when department attorneys concluded that both schools had enticed students with false and misleading claims and had committed "pervasive" misconduct and that, as a result, "the value of an ITT education — like Corinthian — is likely either negligible or non-existent."
Eileen Connor directs the Project on Predatory Student Lending, which recently published an exhaustive deep dive into ITT Tech's fraudulent practices. In a news release about that report, Connor said, "The loans were the object, not education or career training. It is genuinely shocking that this 'school' was able to fool regulators and accreditors for so long."
After the collapse of ITT Tech and Corinthian, advocates pushed the Department of Education to give eligible borrowers relief from their federal loans, which, along with other losses related to the collapses, cost the U.S. government roughly $1 billion.
Why didn't the department use the nuclear authority that Congress gave it in 1992 to hold the schools' leaders liable for some of those losses? It's complicated.
First, there's the human explanation. When the department helped arrange the sale of Corinthian to a debt collector, Connor says, department officials interacted with its CEO multiple times. "It's harder to slap a fine on someone you've just had lunch with."
Then there's the resources explanation: that the department can do only so much at one time.
Instead of focusing on holding the perpetrators of the fraud accountable, it focused on providing debt relief to their victims, trying to "ensure that borrowers were being helped on the back end," says Dan Zibel, who worked in the department's Office of the General Counsel from 2014 through 2017. Zibel says the department's rush to use an old legal provision, known as borrower defense, to erase student loans took considerable time and energy.
Likewise, any attempt to claw back money from individuals would have taken enormous department resources — with no guarantee of success. Even an effort that recoups millions of dollars from an executive has to be viewed in the broader context of the government's losses.
"For a school that created, I don't know, $7 billion in debt over a decade, that's just a drop in the bucket," says Connor. But she argues that holding executives liable isn't just about recouping losses; it's about creating a powerful, symbolic deterrent for future would-be fraudsters.
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