Senators: Hold For-Profit College Executives Accountable for Fraud

Democrats asked the Department of Education to explain why it hasn't held owners and CEOs of for-profit colleges liable in fraud cases.
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  • The Department of Education has declared prominent for-profit systems defrauded former students.
  • However, senators say the owners and executives of those companies have not faced consequences.
  • A letter from lawmakers asks the department to explain its inaction.

U.S. senators want the Department of Education (ED) to explain why it has not targeted executives and owners of for-profit institutions found to have defrauded students.

The Democratic lawmakers, led by Elizabeth Warren of Massachusetts and Richard Durbin of Illinois, addressed a letter to ED Secretary Miguel Cardona on Tuesday. In it, the senators urged the secretary to use his authority to hold executives accountable for defrauding students to deter future business leaders from carrying out similar practices.

"Despite the department repeatedly finding that fraudulent for-profit colleges widely mislead students and misrepresented their costs, ability to transfer credits, and earning potential, their executives continue to take home huge profits," the letter states. "Too often, students are left saddled with debt and no career path while the executives at these institutions prioritize profits over student outcomes."

“Over the past year, the Department of Education and the White House have granted nearly $15 billion in student debt relief to former students at for-profit institutions through borrower defense claims.”
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Over the past year, ED and the White House have granted nearly $15 billion in student debt relief to former students at for-profit institutions through borrower defense claims.

The lawmakers, however, feel that the cost of those discharges has unfairly been put on taxpayers. Instead, executives and owners can help offset the cost of these discharges if they are held liable.

The letter lists examples of executives who profited handsomely before the institutions closed.

Corinthian College's executives were paid nearly $1 million in bonuses weeks before its collapse, the letter states.

"When owners and executives are not held personally accountable, they continue to take home large profits as students and taxpayers end up holding the bag," the lawmakers wrote.

The letter argues that ED has the legal authority to hold leaders accountable. A 2020 report from the National Student Legal Defense Network (Student Defense) reached the same conclusion, as Congress granted this power to ED through the 1992 reauthorization of the Higher Education Act.

The reauthorization gave ED the ability to recover financial losses from anyone who exercises "substantial control over [an] institution," including owners, executives, and those who sit on a board of directors.

Student Defense's report adds that ED has never exercised this power. The organization's vice president and chief counsel, Dan Zibel, supported the lawmakers' letter.

The letter asks Cardona to respond to a list of questions, one of which is why ED did not hold executives accountable in recent cases involving Corinthian Colleges and ITT Technical Institute. The department did seek recoupment from DeVry University for borrower defense claims filed against the system, but it did not order executives to contribute. DeVry is suing ED over the demand.

In June, ED said it does not have the authority to pursue owners or executives, according to the letter. It now requires owners and executives to co-sign on Program Participation Agreements so that they can be held liable in the future.

The letter claims that the Higher Education Act does not state that ED needs a signature to hold them responsible.