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# Education Department Takes Steps to Hold Leaders of Risky Colleges Personally Liable

# Education Department Takes Steps to Hold Leaders of Risky Colleges Personally Liable

March 2, 2023

**Contact:  **press@ed.gov

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***Guidance  clarifies implementation of long-standing statutory provisions***

Today,  the U.S. Department of Education (Department) released guidance outlining how  it will implement long-standing provisions in the Higher Education Act that  grant the Secretary authority to require leaders of  private colleges that  fail to operate in a financially responsible way to assume personal liability  for the cost of unpaid debts owed to the Department of Education. The guidance  clarifies the circumstances in which the Department may require certain individuals  to assume personal liability as a condition of allowing the schools they own or  operate to participate in the federal financial aid programs and details the  considerations that the Department will take into account when determining whether to require an individual to  assume personal liability by signing the institution’s program participation  agreement. 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 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.” 

“Individuals who control schools and reap substantial profits are responsible for running healthy institutions,”  said Federal Student Aid Chief Operating Officer Richard Cordray. “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.” 

  This guidance clarifies how the Department  will implement Section 498(e) of the  Higher Education Act (HEA), which specifies that the Department may require  individuals who exert significant control at private institutions to assume  personal liability. However, prior to this guidance, the Department did not  have a practice – even for the riskiest colleges — of requiring individuals to  assume personal liability, challenging its ability to hold them responsible for  unpaid liabilities.

  The Department anticipates it is most  likely to require an individual to assume personal liability on behalf of the  institutions or groups of affiliated institutions that pose the largest  financial risk to the United States, including institutions that annually  receive tens or even hundreds of millions of dollars of Title IV funds and  institutions with the most serious and significant sets of concerns related to  their compliance with federal financial aid rules.

  By focusing on the riskiest institutions  and the individuals with the ability to make significant decisions regarding  the operation of their institutions, the Department will not only be protecting  students and borrowers, but also fulfilling Congress’ statutory direction that  the Department protect the financial interests of the United States.     To guide the Department’s decision-making,  the guidance includes a non-exhaustive list of factors the Department may  consider when determining whether to pursue personal liability. These include:
- Civil or criminal lawsuits,       settlements, or disciplinary or legal actions by the Department or other       state or federal agencies involving federal student aid or claims of       dishonesty, fraud, misrepresentation, consumer harm, or financial       malfeasance.
- Significant compliance issues,       such as findings stemming from program reviews or audits, unpaid       liabilities from either of those processes, or findings of a lack of       administrative capability.
- An executive compensation or a       bonus structure that could significantly affect the financial health of       the institution.   

The Department will consider these factors  when assessing institutions that have demonstrated certain statutory indicators  of financial risk, such as significant audit findings, or failing to meet  financial responsibility requirements.

Going forward, the Department will  generally begin making determinations on a case-by-case basis about whether it  will require individuals to assume personal liability when their institution’s  program participation agreement is up for renewal or if they undergo a change  in ownership. There also may be instances in which the Department accepts other  financial protections to minimize the risk of financial losses in lieu of the  signature.
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