US government fails to collect over $ 1 billion in debt from nearly 1,300 colleges, report says

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The US Department of Education building is pictured in Washington on Monday, July 13, 2020.

Caroline Brehman | CQ-Roll Call, Inc. | Getty Images

The Education Department has failed to collect more than $ 1 billion in debt from nearly 1,300 colleges, most of which are for-profit, according to a report published Thursday by a nonprofit student advocacy group.

These institutions owe the ministry money in February, according to the National Student Legal Defense Network report, which cites documents obtained over the past two years in connection with Freedom of Information Act requests.

The group says the ministry did not apply the same aggressive methods typically used to collect money from student loan borrowers to collect debts owed by colleges and their owners.

“The department continues to devote a great deal of time, energy and money to its collection systems from student borrowers,” Dan Zibel, chief counsel for the association and one of the authors of the report, told CNBC. . “Still, nothing is happening to collect debts from for-profit college institutions, owners and managers. This kind of disparity in how the department treats them is grossly uneven.”

In a statement to CNBC, Education Department press secretary Kelly Leon said the department was “committed to improving our policies and practices to better hold colleges accountable for their actions and to provide borrowers with fair and simplified access to the benefits to which they are entitled. “

There are many reasons schools owe the department money, Zibel said. One of them is the misallocation of funds from Title IV Student Loans of the Higher Education Act, a student aid program designed to reduce the financial pressure associated with attending higher education.

The ministry provides more than $ 115 billion in funding each year to colleges participating in the program. These funds are then distributed to eligible student borrowers who must repay the ministry directly, the report says. If a college improperly administers funds to ineligible students or makes an overdraft, it must reimburse the department for wasted costs, according to the report.

The report adds that other reasons colleges owe money include bad debt fines and discharge loans, which are student loans that institutions can be required to pay if they close.

One tactic the department is using to hold colleges accountable for their debt is to cut them out of federal funding, according to the report. However, the report states that nearly 200 of the nearly 1,300 schools continued to receive Title IV funding in the 2019-20 school year.

“We hope the department will do everything in its power to protect students and borrowers, which means holding bad actors to account and rethinking the way it treats struggling student borrowers,” Zibel said.

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