I'm currently just one semester away from earning my bachelor's degree. To do so, I resigned from a reasonably decent sysadmin job. If I was put into the position of one of the students going to the failed college in the article I would be out 3 years of my life. For me the difference in salary alone, even if I was compensated for every dime spent on education from tuition, rent, utilities, books, gas, everything would still be over $100,000.
Just covering costs is a drop in the bucket compared to the value of literally years of someone's life. If my college closed their doors the day after the start of next semester I would be apoplectic. For profit colleges should absolutely be required to have enough funds in reserve to make sure that they could continue operation long enough to let all currently enrolled students finish at a full time enrollment schedule.
Students are left with student loans that are basically impossible to discharge in bankruptcy. Student loan forgiveness programs like the one for public service almost never actually pay out. Even if you die and your assets aren't enough to cover the loan, debt collectors will often go after immediate family members even though they are under no obligation to pay the debt in an effort to trick them into assuming responsibility for it. The whole point of making student loans unable to be discharged under basically any circumstances is to let creditors loan money for education without collateral.
Why shouldn't we require similar protections to keep for-profit colleges from defaulting on their obligations? I don't think what you're suggesting goes far enough to protect students and even if it did, it would need some teeth to it to meaningfully enforce it. We already have regulations to discharge student loans when an institution goes under but because of parasites like Betsy DeVos in the majority of cases those loans are still being collected on today.
I think the main thing here is that if an institution has "failed" then the government has already failed. Regulations should be structured in such a way that if an institution wants to close then it's cheaper to stop accepting new students and let the current ones finish rather than default and immediately close.