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Education Department Clarifies When It Can Require Institution Leaders to Assume Personal Liability for Unpaid Debts

The U.S. Department of Education (ED) has released guidance on implementing Higher Education Act provisions that allow the Secretary of Education to require leaders of private colleges failing to operate with financial responsibility to assume personal liability for unpaid debts.Education Secretary Dr. Miguel CardonaEducation Secretary Dr. Miguel Cardona

The guidance clarifies when ED can require individuals to assume personal liability to allow their schools to participate in federal financial aid programs. This allows ED to pursue those people for liabilities not paid by the schools, including costs resulting from closed school and borrower defense discharges. ED expects it is most likely to impose such requirements on institutions with the most financial risk.

“The Biden-Harris Administration is canceling the loans of more than a million borrowers cheated by for-profit colleges. But too often, the owners and executives of these colleges escape liability,” said Under Secretary James Kvaal. “Congress gave the Department the authority to make college owners and operators personally responsible for these losses in certain circumstances and we are going to use that authority to hold them accountable, defend vulnerable students, protect taxpayer dollars, and deter future risky behavior.” 

ED will now begin making such determinations when schools’ program participation agreements come up for renewal or they have ownership changes.

The guidance included factors ED may consider when making these determinations, including civil or criminal lawsuits, settlements, or disciplinary or legal actions related to federal student aid or claims of dishonesty, fraud, misrepresentation, consumer harm, or financial malfeasance; significant compliance issues; or an executive compensation or bonus structure that can significantly affect the school’s financial health.

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