Student Defense Legal Memo Argues Department of Education Should Apply Longstanding Fiduciary Standard to Hold Low-Performing Schools Accountable Stude

FOR IMMEDIATE RELEASE:
April 4, 2023 

MEDIA CONTACT:
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Student Defense Legal Memo Argues Department of Education Should Apply Longstanding Fiduciary Standard to Hold Low-Performing Schools Accountable

Student Defense today released a new legal memo urging the Department of Education to carefully assess institutional compliance with its longstanding fiduciary standard when approving or renewing program participation agreements. The paper analyzes the Department’s historic application of that standard and argues that increased scrutiny of institutions’ conduct as fiduciaries will better protect students from schools that engage in fraud or mismanagement of student aid funds.

The fiduciary standard applies to all institutions that administer federal student aid funding and requires Title IV participating schools to exercise “the highest standard of care and diligence” to remain compliant with program requirements. The standard requires schools to administer these programs in good faith, which includes maintaining accurate records, refraining from making misrepresentations to students, and ensuring aid funds are distributed in accordance with federal law.

“[B]y couching institutional noncompliance with statutory and regulatory requirements within the defined fiduciary standard … the Department can ensure that all institutions are on notice that they must adhere to the ‘highest standard known to law,’” the memo says.

The Department has previously used non-compliance with the standard to end agreements with institutions that have breached this duty, including a number of troubled for-profit colleges and universities. In 2016 alone, the Department denied six school recertifications based wholly or in part on the fiduciary standard.

“The Department should be taking accountability and oversight of these fiduciary relationships seriously,” said Student Defense Vice President & Chief Counsel Dan Zibel. “Unfortunately, the agency hasn’t done enough to prevent bad actors from abusing the system — harming students and leaving taxpayers on the hook for their misdoings in the process. The Department should work more diligently to ensure taxpayer dollars aren’t being squandered, and applying the fiduciary standard to more of these agreements would be a huge step in the right direction.”

A full copy of the legal memo can be found on the Student Defense website.

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