Colleges Owe $1 Billion in Debt to U.S. Government

Colleges Owe $1 Billion in Debt to U.S. Government
portrait of Jessica Bryant
By Jessica Bryant

Published on July 7, 2021

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Amid increasing calls for the U.S. Department of Education to cancel student loan debt, a new report from the National Student Legal Defense Network (NSLDN) reveals that more than 1,300 colleges owe the department a total of $1.2 billion. But for reasons unknown, the department is not collecting.

This comes as a surprise, considering the department's tendency to aggressively collect debt from student borrowers — often through garnished wages, collection agencies, or bankruptcy.

In addition to not collecting on this billion dollar debt, the department has recertified approximately 200 of these institutions, allowing them to receive additional funding from the government under Title IV. These schools received more than $4 billion in Title IV funds during the 2019-20 award year. These funds are used to allow schools to participate in student aid programs.

The majority of this institutional debt is held by private, for-profit colleges and even the smallest outstanding debts have gone uncollected, such as Ashford University's 2016 debt of $32,964. The school was given 45 days to submit payment, but as of Feb. 2021 the institution (now the University of Arizona Global Campus) still owed exactly $32,964 in outstanding debt.

The Department of Education recently canceled $1 billion in debt held by student borrowers who were defrauded by for-profit colleges, some of which are now defunct.

However, the department is simultaneously preparing for student borrowers to restart making loan payments this October. Sen. Elizabeth Warren (D-Mass.), Senate Majority Leader Chuck Schumer (D-N.Y.), and more progressive Democrats in Congress have strongly advocated against this, repeatedly calling on President Biden to extend the pause on student loan payments.

As of second quarter 2021, loans in forbearance account for approximately 70% of all outstanding loan debt held by borrowers. In early 2020, just before the pandemic, loans in forbearance accounted for just under 10%.

Currently, 44.7 million U.S. borrowers collectively owe $1.7 trillion in student loan debt. Some economists have concluded that borrowers will never be able to fully pay it back.

The Department of Education has responded to the NSLDN report stating that it plans to do a better job of holding institutions accountable for their debt and providing borrowers with access to the benefits they're entitled to. But it's still too soon to tell what will happen next.

As of now, the department's failure to collect on institutional debt has cost approximately $218 million — money which will likely never be recovered due to an expired statute of limitations on collections.

Feature Image: Caroline Brehman / Contributor / CQ-Roll Call, Inc. / Getty Images

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