U.S. government moves to protect students from avaricious college practices

The Education Department on Tuesday finalized a package of regulations to safeguard vulnerable college students. It will heighten oversight of colleges on the brink of closure and the administration of federal financial aid programs.

“These final rules will raise the bar for accountability and protect students and taxpayers. They’ll make the department a better cop on the beat,” Education Secretary Miguel Cardona said on a call with reporters Tuesday.

The rules, which take effect in July, make it easier for regulators to police colleges at risk of closure. Federal officials will be able to require more schools to set aside money to protect the department from absorbing student-aid liabilities. Those circumstances include a college entering bankruptcy or facing large financial liabilities from a lawsuit by state or federal authorities.

Colleges will have 21 days to report such perils and whether they have resolved them. The Education Department will also be able to impose conditions, such as an enrollment cap, on schools exhibiting signs of distress.

A spate of school closures, primarily in the for-profit college sector, has cost the government millions of dollars as it is required to discharge the debt of students affected by such shutdowns. Between 2013 and 2022, the Education Department could collect only $344 million of the $1.6 billion colleges owed in federal student aid because the institutions had gone bankrupt or shut down.

It cost the Education Department $1.1 billion, for instance, to wipe out the federal student loan debt of former ITT Technical Institute students who were affected when the for-profit chain shuttered in 2016.

“That leaves taxpayers on the hook, and it fails to deter future wrongdoing. No more,” Under Secretary of Education James Kvaal told reporters Tuesday. “These rules give the department greater tools to protect taxpayers from losses created by school misconduct and closures.”

The regulations also address how colleges handle the billions of dollars they receive in federal grants and loans. They require colleges to clearly disclose information in their financial aid awards, such as the net price that students pay after aid is applied and the total cost of attendance. Colleges also have to provide adequate financial aid counseling and career advice to students.

The rules prevent colleges from withholding a student’s transcript if courses were paid with federal financial aid. Colleges frequently bar students with outstanding bills from accessing their transcripts, preventing them from proving they completed courses at the institution - and often making it harder for them to seek employment.

A study by Ithaka S&R estimates that there are roughly 6.6 million students with stranded credits - credits that cannot be transferred between schools - because of transcript withholding. The practice is common, including for balances as low as $25.

Some states ban the practice. Still, colleges have run afoul of those laws. Former students of Eastern Illinois University sued the school this summer for violating state law by withholding their transcripts over unpaid debts to the college.