A new rule will put the companies that own some for-profit schools on the hook if their campuses defraud students or close their doors.
The Education Department says it will hold companies that own certain private colleges financially responsible for taxpayers’ losses if their schools defraud students or abruptly shut down.
“If a company owns, controls or profits from a college, it should also be on the hook if the institution fails students,” James Kvaal, the department’s under secretary, said in the announcement on Wednesday.
Taxpayers have been left with billions of dollars in losses in recent years when student loans made by the government were wiped out because the students were victimized by the schools they attended. The vast majority of those losses stem from for-profit schools that have come under increasing scrutiny for their educational practices.
When a college suddenly closes, stranded students can have their federal student loan debt forgiven through what’s known as a closed-school discharge. Another relief program, called borrower defense to repayment, can eliminate the federal student loan debt of students who were significantly misled by their school’s false claims. In both cases, taxpayers are typically stuck paying the tab.
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