A top Democrat wants to make them pay. All the executives behind defunct for-profit schools, that is.

·3 min read
Rep. Bobby Scott
Rep. Bobby Scott. Tom Williams/CQ-Roll Call, Inc via Getty Images
  • For-profit schools have shut down in recent years amid allegations of fraud and misleading students.

  • House Education Chair Bobby Scott urged the Education Sec. to hold the executives of those schools accountable.

  • He wants the executives to pay for the closure costs that students and taxpayers were saddled with.

  • See more stories on Insider's business page.

A series of for-profit colleges have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can't pay off. A top Democrat wants to make these schools' executives pay.

On Monday, House Education and Labor Committee Chair Bobby Scott wrote a letter to Education Secretary Miguel Cardona, urging him to hold owners, board members, and executives of now-defunct for-profit schools "individually responsible" for money the schools owe to the federal government.

"Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs," Scott wrote.

After major for-profit chains, notably including Corinthian Colleges and ITT Technical Institutes, shut down, students and taxpayers had to pay the closure costs - not the people who ran the school.

Scott highlighted actions the Securities and Exchange Commission (SEC) has taken, like bringing ITT to court in 2015 for deceiving investors about high rates of late payment and defaults on student loan, but he noted that SEC penalties have been narrow, and the Education Department can do more given its authority under the Higher Education Act - including making them pay for the debt students had to take on.

Last year, Student Defense, which advocates for students' rights, released a report detailing how executives can be held accountable under the Higher Education Act, and Dan Zibel, author of the report and Vice President of Student Defense, wrote on Twitter on Thursday that "too many predatory colleges have profited from fleecing students & bilking taxpayers."

Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans in a process known as the "borrower defense to repayment." This methodology, approved by Education Secretary Betsy DeVos, compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs. The bigger the difference, the more relief the applicant would receive.

But compared to a 99.2% approval rate for defrauded claims filed under President Barack Obama, DeVos had a 99.4% denial rate for borrowers and ran up a huge backlog of claims from eligible defrauded borrowers seeking student debt forgiveness, which is why Cardona reversed that policy to start giving borrowers defrauded by for-profit schools the relief they qualify for.

Scott's letter is the second asking the Education Department to hold for-profit education executives accountable. In October 2020, Massachusetts Sen. Elizabeth Warren led five of her Democratic colleagues in pushing for the department to use all the legal tools at its disposal to hold executives of the for-profits that "defrauded students personally, financially accountable."

The lawmakers wrote the department's failure to enforce accountability "has also encouraged future lawbreaking by executives who feel confident they can enrich themselves at the expense of students and taxpayers without consequence."

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