I don't think it's up to 'the government', it's up to the courts. It seems pretty clear to me that the school should have educated the students, and didn't. Hopefully the courts will see it that way as well.

Yes, I know that means the taxpayer footing the bill. The government was responsible for accrediting, regulating and auditing the colleges. The government, and collectively the people, are responsible for any failures in that duty and any individual citizens harmed as a result deserve compensation.

Note I'm not a US citizen, so my comments are meant in general.