Washington — A for-profit college in New York City faces possible expulsion from the federal government’s system of subsidized student loans after allegedly paying off some of its own students’ loans to help improve its default rating.

The college, Technical Career Institute, which is owned by EVCI Career Colleges, has paid more than $440,000 to loan companies since October 2005 as part of the unauthorized strategy, according to a report by the Education Department’s inspector general. The college subsequently attempted to collect the debts from the students.

Under federal law, colleges face penalties, including the loss of eligibility to participate in the federal system, if too many of their students default on their government-subsidized loans. Colleges, however, are not allowed — as Technical Career Institute allegedly did — to pay off those loans for their students to help avoid a poor institutionwide default rating.

The inspector general’s office, which makes recommendations to the Education Department based on its findings, has suggested that Technical Career Institute be required to halt the practice and to cease all efforts to collect money from students in cases where it paid off their loans. The inspector general also has recommended that the department recalculate the institute’s default rate to take into account the loans it improperly paid off, and then apply any penalties based on that new rate.

Technical Career Institute, in its response to the report, denied wrongdoing, saying no students had been harmed and asserting that department officials were aware of its practice of paying off student loans and “did not communicate any concerns” about the practice. The inspector general, responding to that answer, said the department’s guidance to the institute was not definitive on that point. —Paul Basken