Last week, students attending several Argosy University campuses across the country received a nasty shock: Their campuses would be shutting down in 48 hours. The move leaves thousands of students ITT Loan Forgiveness in the lurch with unclear futures and millions of dollars in missing federal financial aid that the school received from the federal government but failed to disburse to students.
They join thousands of students who have been hit by sudden closures after attending colleges that made national news—such as the Heald College brand, owned by Corinthian Colleges, and ITT Technical Institute, as well as lesser-known colleges, including West Virginia Business College, Harrison College, Westech College, and Ridley-Lowell Business and Technical Institute
These sudden closures must stop. But if and when they do happen, school leaders should be personally liable.
This must change. Any executive from a college that closes precipitously should be financially liable for damage done to students and taxpayers. The U.S. Department of Education should take back money paid to school executives in salary or bonuses and instead use it to cover the cost of ITT Loan Forgiveness and refund tuition paid by students who can’t otherwise get their money back. This should be the first step to a broader rethinking of the financial structures and requirements around these schools, including deferred compensation requirements for executives.
Putting executives on the hook for sudden closures is obviously a departure from prior expectations of the consequences that business owners should face in such an event—but for-profit colleges are not normal private businesses. Their existence depends upon federal money, and taxpayer dollars make up the overwhelming majority of their revenue.
Thus, when a school suddenly closes, taxpayers face significant costs in the form of discharging student loans that the government rightly forgives as well as the millions or billions of dollars spent on credits that do not transfer or lead to a credential. These represent much greater public consequences than would be involved in the event of a normal private business going under.
These abrupt closures are also extremely disruptive. Students are left with uncertain financial futures, often after spending large sums of money, using up their financial aid, taking on debt, and spending time they cannot recoup. They must navigate a complex process to get their loans discharged. They may have to ITT Loan Forgiveness sort out credit transfer options in time for the start of the next academic term at another school or may be forced to put their education on hold. By contrast, an orderly closure gives students weeks or months to sort out their options and means that the college stops recruiting and enrolling new students, so no student finds the doors shuttered just days after they enroll.
Just saying that a closing school is financially liable to students and taxpayers is not enough. By the time a school is in dire financial trouble, there’s never any money left for students and taxpayers; it’s been used to pay off investors, creditors, or executives. For example, ITT Loan Forgiveness closed because the Education Department asked it to provide a letter of credit equal to 20 percent of the federal aid it received due to concerns about its stability, and the company couldn’t come up with the money.
This scenario inevitably leaves students and taxpayers to fight with other creditors over assets worth a tiny fraction of what the college owes—and that money is often coming from scraps such as the worth of facilities and even furniture.
Moreover, trying to establish financial liability produces pittance settlements. The U.S. Securities and Exchange Commission (SEC) sued two top executives at ITT Tech for fraud in 2015, a year before the school’s collapse. In 2018, the executives paid a combined $300,000, a sliver of their compensation, and made no admission of wrongdoing. Two Corinthian executives recently reached a similar agreement with the SEC for just $100,000. And these settlements were only over allegedly misleading investors, not the harm done to students.
Holding school leaders liable for closure costs to students and taxpayers would create incentives for them to be more cautious in daily operations and more methodical in closing. ITT Loan Forgiveness Currently, the safest, most lucrative course of action for schools is to grow big fast; doing so generates profit and helps fuel further expansion with minimal risk.