'Predatory' for-profit colleges must face 'substantial financial consequences' for borrowers' massive student debt, top Democrat says

• The Education Dept. is beginning negotiations on reforming the student-loan industry.
• Rep. Rosa DeLauro requested predatory for-profit schools be held financially accountable for wrongdoing.
• Biden has already canceled $2.6 billion in student debt for some defrauded students.

As the Education Department is beginning negotiations over reforms to the student-loan industry, House Appropriations Chair Rosa DeLauro wanted to make sure holding for-profit colleges financially accountable for wrongdoing didn't get lost in the mix.

"Predatory for-profit colleges should be on notice that there will be straightforward, substantial financial consequences for any unscrupulous behavior that leads to a successful borrower defense claim," she wrote in a letter to Education Secretary Miguel Cardona.

On Monday, the department started the negotiated rulemaking process, which is when affected interest groups and government representatives negotiate terms for a specific rule change. The department's regulatory agenda includes reforms to loan forgiveness programs, including forgiveness for borrowers defrauded by for-profit schools. DeLauro's letter requested not only debt relief for those borrowers, but increased accountability measures for the "predatory" colleges.

"The Department correctly recognizes that student borrowers who were harmed should receive swift relief without having to wait for potentially lengthy proceedings where institutions can contest determinations," DeLauro wrote.

So far, Cardona has canceled about $2.6 billion for borrowers defrauded by for-profit schools, and he reversed a Trump-era policy that gave only partial student-debt relief to defrauded students, during with 99.4% of borrowers who applied for relief were denied.

But, as DeLauro noted, the institutions that forced borrowers to take on more debt than they could pay off are not facing adequate consequences. She wrote that as part of the rulemaking process, Cardona should ensure that after borrowers receive the relief they deserve, the process for holding the colleges financially accountable should be automatic and "include fines commensurate with the scope of the misrepresentations and wrongdoing committed by the institution."

She also urged for financial penalties to apply for wrongdoing committed prior to the implementation of the new regulations to ensure the for-profits remain on the hook for misconduct, regardless of when it happened.

A series of for-profit college have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can't pay off, and as Insider previously reported, DeLauro is not alone in requesting the colleges be held financially liable. House Education and Labor Committee Chair Bobby Scott urged Cardona in August to to hold owners, board members, and executives of now-defunct for-profit schools "individually responsible" for money the schools owe to the federal government.

"Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs," Scott wrote.

The department is continuing its negotiating process this week, and it is also expected to unveil an overhaul of the Public Service Loan Forgiveness program, which currently rejects 98% of public servants who apply for loan forgiveness.