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Student Defense Report: Department of Education Ignores $1 Billion in Unpaid Institutional Liabilities While Chasing Borrowers in Bankruptcy

June 24, 2021

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Student Defense Report: Department of Education Ignores $1 Billion in Unpaid Institutional Liabilities While Chasing Borrowers in Bankruptcy
In one case, the Department opposed discharging a single mom’s student debt citing cell phone bills, unemployed 15-year old son as evidence

After Vatterott College closed in late 2018, the Department of Education assessed the defunct for-profit school more than $240 million in unpaid liabilities. As of February 2021, more than two years after the closure, those debts remain unpaid. And despite Vatterott’s parent company — TA Associates — continuing to own other schools that receive federal student aid funds, there are no signs that the Department has attempted to collect what taxpayers are owed by the global private equity firm.

On the other hand Ronishia, a single mom from Ohio, filed for bankruptcy protection in November 2019. As part of that proceeding, she sought to have $51,000 in student loans discharged. While the court approved her bankruptcy generally, her attempts to have her student loans discharged met swift opposition from the Department, who asserted that she did not show an “undue hardship.” The Department argued that her 15-year old son was unemployed, her cell phone bill was too expensive, and that her circumstances were not sufficiently dire. In March 2021, the Department forced her discharge case to trial, and she still awaits an answer. Meanwhile, one of the schools that Ronishia took student loans to attend, has its own unpaid debt to the Department, and which the Department appears to have taken no meaningful steps to collect upon.

These examples are not unique. While the Department routinely allows colleges, for-profit executives and corporations to walk away from unpaid liabilities, it aggressively and persistently pursues loan debts from financially distressed student borrowers.

The Missing Billion, a new report released by Student Defense today, details how the Department of Education forcefully confronts student borrowers while looking the other way from more than $1 billion in unpaid liabilities from for-profit and other colleges. The liabilities were assessed for a number of reasons, including inappropriate application of funding and for loans discharged due to school misconduct or closure.

Among the report’s chief findings:

  • The Department reports being owed approximately $1.2 billion in unpaid liabilities from more than 1,300 institutions, as of February 2021
  • $218 million are likely permanently lost due to a presumptive statute of limitations on collections
  • Approximately 200 institutions that owe liabilities to the Department are still participating in Title IV student aid programs overseen by the Department
  • Institutions with unpaid liabilities are often still recertified by the Department for participation in Title IV an additional funding
  • Even accelerated oversight measures, such as “heightened cash monitoring”, have proven ineffective in holding schools accountable and protecting borrowers and taxpayers. Some schools have been on “heightened cash monitoring” for more than six consecutive years. Likewise, Vatterott was allowed to continue participating in Title IV despite failing the Department’s financial responsibility composite score for 12 consecutive years

“The Department of Education continues to spend time and money opposing struggling student borrowers while doing nothing to collect more than $1 billion owed to them by colleges and for-profit companies,” said Dan Zibel, Student Defense Vice President and Chief Counsel. “There are a number of steps the Department can take today that would help alleviate the burden of debt on borrowers while holding these schools accountable for what they owe. The two aren’t mutually exclusive, and we hope this report sheds some light on an issue critical to both borrowers’ financial security and government accountability.”

A full copy of the report can be found here.