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ED Issues Updated Personal Liability Guidance for Financially ‘Risky’ Institutions

By Hugh T. Ferguson, NASFAA Managing Editor

The Department of Education (ED) on Thursday announced that it would be taking steps to hold leaders of private colleges personally liable for debts owed to the department when they fail to operate in a financially responsible manner.

The announcement follows lengthy litigation over efforts to discharge loans for students who have enrolled in programs that they allege have engaged in misconduct, as well as ED’s efforts to rewrite borrower defense regulations.

ED stressed that the guidance would focus on the “riskiest institutions” in an effort to not just protect borrowers, but also to fulfill its obligations to Congress by ensuring that the financial interests of taxpayers are also protected.

“The Biden-Harris Administration is canceling the loans of more than a million borrowers cheated by for-profit colleges,” said Under Secretary James Kvaal. “But too often, the owners and executives of these colleges escape liability.”

In order to carry out this guidance the department cited a provision of the Higher Education Act (HEA), which specifies that ED may require individuals who exert control at a private institution to assume personal liability.

The guidance anticipates that an individual would be required to assume personal liability for institutions that annually receive “tens or even hundred of millions of dollars of Title IV funds,” as well as schools that have a “significant” set of federal financial aid compliance concerns.

The non-exhausted factors to be considered for those compliance concerns — that would require personal liability — include whether an institution is involved in certain civil or criminal disputes, ongoing compliance issues, as well as an institution's executive compensation or bonus structure, that could impact an institution’s financial health.

ED said it will “generally” make personal liability determinations on a case-by-case basis, and that such reviews would occur when an institution’s program participation agreement is up for renewal, or if they undergo a change in ownership.

The department also said there may be instances where instead of requiring a personal liability signature that “other forms of financial protections” may be accepted in order to minimize the risk of financial losses.

According to ED, Thursday’s guidance is the first time the department has outlined a practice for requiring individuals to assume personal liability.

 

Publication Date: 3/3/2023


Jeff A | 3/3/2023 9:54:06 AM

Realize this applies to private NFP colleges as well. Those that trigger the financial risk provisions (and several apparently may be in that position now), the college president, perhaps their governing Board members, and senior execs could be asked to assume personal liability. Provided ED applies this guidance equitably.

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