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Is It Time to Hold For-Profit School Executives Liable For Fraud?

After a long history of outrage at for-profit trade schools that generate huge student loan defaults, advocates and former Department of Education officials are arguing that now is the time to hold executives and investors in the schools personally liable for the financial damage they cause to students and taxpayers, NPR reports. Congress gave the Secretary of Education the power to do that in 1992. Despite high-profile scandals and egregious practices uncovered since then, the office has never invoked the power. Experts say that the collapses of Corinthian Colleges and ITT Tech in 2015 and 2016 presented the ideal opportunity to showcase the twin aims of the policy -- deterrence and recouping costs. The collapses of those two schools alone cost the government roughly $1 billion, while executives escaped with millions. Legal action may be more effort than it is worth.

Much of the cost borne by the government comes from providing former trade school students with loan relief. In February the Department of Education announced that it was canceling more than $70 million in loans for DeVry students who had been misled by false advertising. This has led to renewed criticisms of federal inaction and lenience. Under pressure from advocates and Representative Bobby Scott (D-VA), the Biden administration has signaled that it may hold executives personally liable. At a hearing, Scott questioned Richard Cordray, head of the Education Department's Federal Student Aid office. When Scott reminded Cordray that his department has the power "to seek recovery of financial losses against owners and executives" of fraudulent college programs, Cordray responded, "We see eye to eye on this." Both Cordray and Undersecretary of Education James Kvaal have suggested that the Biden administration would invoke the power soon. Kvall stated, "There will be liabilities for the current owners of these schools to deter wrongdoing not just at DeVry, but everywhere that it might otherwise occur."


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