Predatory Lending/Consumer Protection Clinic

Kaplan Has Been Exploiting Veterans

For-profit colleges have exploited the promise of higher education by deceiving tens of thousands of students seeking a better life. One of the groups the for-profit industry has particularly targeted are veterans and servicemembers.

That is why the Project on Predatory Lending represented the Veterans Education Success organization to prepare a new report outlining the predatory actions of one for-profit institution, Kaplan Colleges and University, against veterans and servicemembers.

VES collected complaints from nearly 100 veterans who attended Kaplan-owned programs. Their complaints include things like:

  • Raising the costs on veterans once they enroll and failing to inform them of additional fees;
  • Misleading veterans about their military benefits covering the tuition costs, resulting in unexpected and burdensome debt; and
  • Borrowing money on behalf of veterans without their consent.

Unlike the for-profits colleges that are forced to shut down when their fraudulent behavior is exposed, Kaplan is still an active and functioning college. In fact, Kaplan University was just purchased by Purdue, a public university in Indiana, to conduct its online programs. And the Department of Education just approved this transaction, which will remove some of the protections for borrowers and taxpayers that apply only to for-profit schools not conducting business under the auspices of public entities.

We hope you will read the full report to understand the extent of the predatory behavior by Kaplan.

Click here to read the report.

Military servicemembers and veterans deserve our respect and gratitude. And, like all students, they deserve to seek higher education without facing fraudulent and unscrupulous companies trying to extract federal funds. Kaplan’s actions run directly counter to that. It’s time for the government to step in to help, or they too will have failed in their duty to support veterans who have sacrificed so much for us all.

Negotiated Rulemaking Reconvenes in Washington D.C. for Act Two of Regulatory Theater

This week, in a conference room in Washington D.C., various stakeholders of the federal student aid programs will meet to discuss whether there should be any check on the cost and value of vocational training programs that receive public money.  The negotiated rulemaking committee formed by these various stakeholders, and representatives of the Department of Education, will meet several more times before the for-profit college industry will get to write the “gainful employment” rule that will pose the least difficulty to its business model early next year.

Act one of a similar regulatory theater took place last month, when the Department convened a negotiated rulemaking on the topic of borrower defense, the process by which student borrowers who have been cheated by their schools can seek loan cancellation.  This rulemaking will likely displace the borrower defense rule enacted just last year, which the Trump administration delayed after taking office.

As someone who represented the legal aid constituency in the most recent negotiated rulemakings on gainful employment and borrower defense, I understand why these two regulations are the focus of the Department’s regulatory agenda.  If allowed to operate, both borrower defense and gainful employment would bring a measure of accountability to an industry that continues to do seemingly everything imaginable to discredit itself.

As a negotiator on the 2013 gainful employment rulemaking, I tried unsuccessfully to convince the Department that loan cancellation is a necessary component of any gainful employment regulation.  It seems obvious that students who borrow to attend a program that purports to provide skills necessary for a vocation, but which on the whole fails, have been cheated.  And the Department plays a role. It is supposed to act as a gatekeeper. No matter how many fine print disclaimers the Department may make, disavowing any role in assessing the quality of program a borrower decides to attend, the ability of a student to borrower loans from the government to pay for education sends a strong signal that the program must be a good one.  Why else would the government be willing to lend money?

In 2013, on behalf of the legal aid community, I proposed that the Department recognize gainful employment metrics as the basis for an affirmative borrower defense by students who attended failing programs.  In response, the Department proposed to amend the borrower defense regulation—not the subject of the rulemaking—to specify that gainful employment metrics could NOT form the basis of borrower defense.  Then it went a step further, and proposed eliminating the borrower defense regulation altogether.  We were able to defeat this proposal, but the final rules on gainful employment did not contain any provision for loan cancellation for students who attended programs that by the Department’s own definition provided more debt burden than value.  Although the Department recognized “the desire to ease the debt burden of students,” the “issue requires further consideration” and therefore the Department “will continue to explore ways to provide debt relief to students in future regulations.”

This was in October 2014, almost two years after the Department had requested information from Corinthian Colleges, Inc. regarding its placement rate data, and several months after the Department placed the company on heightened cash monitoring, restricting its ability to draw down federal student aid.  Within six months, before the gainful employment rules would even go into effect, the Department had fined Corinthian for misleading students, precipitating the school’s closure and bankruptcy.

Later in 2015, the Department convened the first borrower defense rulemaking because of a “building debt activism movement.” Every student loan contract since the mid-1990s has, in line with guidance from the Federal Trade Commission and Congress, provided for loan cancellation upon a showing that the loan was the product of school misconduct. The Department has said on multiple occasions that it was caught off guard by borrower defense, as it had only received a handful of such claims in the decades prior to 2015.  But that year alone, it would receive tens of thousands of applications.  The first tide of applications came from students organized by the Debt Collective, an organization that stepped into the void between rights and remedies for borrowers.  The Department didn’t have any process or even a form for borrowers to assert this contractual right until the Debt Collective created one.

Thirty thousand people have gotten justice in the form of loan cancellation because of borrower defense.  There are close to 100,000 applications pending.  The majority of these claims have been from students of Corinthian Colleges. Second behind Corinthian is ITT, a school that declared bankruptcy in 2016.  Not coincidentally, close to 80% of ITT’s programs would not have passed the gainful employment regulations.

The writing was on the wall when the Department tried to stealthily remove the borrower defense regulations in 2013.  And it is no less clear today than it was then that there is a massive problem with the federal student aid program.  This program was intended to alleviate rather than reify, or worsen, the wealth gap in our country.  Those looking to obtain the basic skills and credentials that the labor market now requires for entry-level positions in trades should not have to take on massive amounts of debt that they will never be able to repay, even under the best-case employment scenario.  And the Department should not enable this zero-sum game between students and an industry that takes taxpayer dollars as revenue and creates a near dollar-for-dollar wake of individual debt.

Thankfully, despite the current climate, I see no indication that this genie will ever go back into the bottle.  Even the Higher Education Act reauthorization bill introduced in Congress last week, in all of its meanness, did not go so far as to take away the right of students cheated by for-profit schools to seek loan cancellation.  The longer this industry survives, the more debt it creates without returning any value to society, the closer we come to a reckoning.  No matter what happens this week in a conference room in Washington D.C.

Project on Predatory Student Lending’s Director of Litigation, Eileen Connor, selected for the 2017 “Rising Star” award from the National Consumer Law Center

The Project on Predatory Student Lending’s Director of Litigation, Eileen Connor, has been selected for the 2017 “Rising Star” award from the National Consumer Law Center for her significant contributions to consumer law. Eileen’s award comes as a result of her Second Circuit victory in the case Salazar v. King. Her clients were defrauded by the predatory practices of the now-defunct Wilfred Beauty Academy.

Wilfred, a for-profit chain of cosmetology and business trade schools, came under government investigation in the 1980s for the misuse of student aid funds and the falsification of loan applications. The result of the investigation was an overwhelming amount of evidence proving Wilfred’s fraud in certifying students’ eligibility for loans. In 1996, the Department of Education found that Wilfred’s fraudulent practices were widespread and recommended that all Wilfred students who were improperly enrolled receive a loan discharge, reimbursement for money they had paid, and a restoration of their credit. Despite its own recommendation, the Department continued to collect on these loans, including through involuntary collection methods such as seizing tax refunds and garnishing wages.

After the Department refused Eileen’s request that it suspend collections and notify all Wilfred borrowers that they may be eligible to discharge their loans, as it was required to do by law, Eileen filed this class action lawsuit in 2014. She challenged the Department’s refusal to meaningfully notify borrowers of discharge rights – rights that stem from the Department’s own failure to diligently oversee the predatory for-profit schools participating in the federal student loan program. The Second Circuit found that the Department’s refusal to notify borrowers was final and reviewable, and that judicial review was especially appropriate given the collection powers the Department exercised against the putative class members.

The Second Circuit’s ruling cracks open the door to relief for defrauded borrowers by showing that, in carrying out each and every function related to the federal student loan program, the Department must at least follow the law and its own regulations.

Eileen’s tenacious advocacy was carried out over more than three years, including before an administrative agency, a district court, and the Second Circuit. Salazar is an important and unfortunately rare case that begins to rein in the lawless and harmful approach that the Department of Education takes with respect to the rights of defrauded student loan borrowers. In short, the recognition is well-deserved. The Project on Predatory Student Lending congratulates Eileen on the award and thanks her for her tireless and inspirational leadership. We look forward to celebrating her advocacy at the National Consumer Law Center’s Consumer Rights Litigation Conference this week.

Former For-Profit College Students Ask Federal Court to Void Student Loan Debt

Yesterday, Tina Carr and Yvette Colon, two former defrauded students of the for-profit Sanford-Brown Institute in New York, sued the Department of Education (Department) and Navient to block the enforcement of their student loan debt. They sued because of the Department’s failure to act on thousands of borrower defense applications by former students whose debts it has the legal obligation to cancel. The Project on Predatory Student Lending and the New York Legal Assistance Group (NYLAG) represent Ms. Carr and Ms. Colon.

The lawsuit comes just as the Department convenes a second negotiated rulemaking committee in as many years on the subject of borrower defense. But what is happening in Washington D.C. is nothing more than regulatory theater: while claiming to process borrower defense applications, the Department has repeatedly delayed—and in this week’s rulemaking, will attempt to rewrite—a rule that would have clarified the process for borrowers like Ms. Carr and Ms. Colon to seek cancellation of fraudulent student loan debt. The Department has shown that it has no intention to give cheated students a fair hearing, and this rulemaking is further display of its bad faith.

Sanford-Brown, owned by Career Education Corporation (CEC), engaged in outright deception to induce Ms. Carr and Ms. Colon to enroll in its vocational programs. Both students entered programs in medical fields, only to find out after the fact that the school lacked the necessary accreditation and did not provide adequate training. Sanford-Brown also lied about its dismal track record of preparing students for medical vocations.

Ms. Colon and Ms. Carr are not alone in having been cheated by Sanford-Brown. The Office of the Attorney General of the State of New York (OAG) pursued CEC for these deceptions, and found that CEC systematically cheated students like Ms. Carr and Ms. Colon. Although Sanford-Brown representatives cited an 80 percent job placement rate to Ms. Carr, the OAG found that the actual placement rate was only 26.1 percent. The OAG found that Sanford-Brown committed widespread deception concerning programmatic accreditation, and failed to disclose that graduates generally could not transfer credits to legitimate schools. The OAG concluded that these practices violated New York’s consumer protection laws.

In March 2015, Ms. Carr and Ms. Colon submitted defense to repayment applications to the Department of Education and Navient, invoking their right to cancellation of their loans based on Sanford-Brown’s deceit. Despite Ms. Carr and Ms. Colon’s clear legal entitlement to loan cancellation, the Department and Navient have refused to consider their defenses, leaving Ms. Carr and Ms. Colon to struggle—along with tens of thousands of other borrowers whose defenses the Department has ignored—with burdensome and insurmountable student loan debt.

Ms. Carr and Ms. Colon did everything right, including submitting evidence from the OAG that Sanford-Brown deceived them into taking out loans to get an ‘education’ that would never lead to gainful employment. But almost three years later, Ms. Carr, Ms. Colon, and too many other students are still suffering every day from damaged credit and the threat of collection on these unlawful loans. They had no choice but to go to court.

Faced with the Department’s bad faith, and after almost three years of waiting, Ms. Carr and Ms. Colon are asking a federal judge to vindicate their right to be free of unlawful debt. You can read the complaint online here, and visit this page for more information about the case.

 

In a Second Rebuke to Department of Education, Federal Court Refuses to Relinquish Case of Corinthian Borrower

In its latest ruling on October 31, 2017, the United States District Court for the Central District of California demanded that the Department of Education respond to the allegations of Sarah Dieffenbacher, a mother of four who was defrauded by Everest, a Corinthian Campus in California.

Sarah’s case began when the Department threatened to garnish her wages to pay off her student loan debt, despite her numerous requests that the Department cancel the fraudulent debts. In response to the lawsuit, the government asked the court to send the case back to the Department so that it could continue to consider Sarah’s case without court oversight, but the court denied the request and ordered the Department to consider Sarah’s discharge applications by September. The Department failed to do so.

Instead, the Department issued an “interim order” purporting to withdraw its wage garnishment order and, in September, informed the court that it would take another six months to consider Sarah’s loan discharge application. In response, the court asked the parties to explain whether the Department’s actions should prevent the court from hearing the case. Sarah filed a detailed brief explaining that they did not; the Department filed three pages.

In its latest ruling, issued on October 31st, the court agreed with Sarah, denying the Department’s attempts to take this case out of federal court and ordering it to answer Sarah’s complaint within 20 days.

The court’s refusal to relinquish the case represents another rebuke of the Department’s efforts to deny Sarah her legal right to loan forgiveness, and another step toward vindicating Sarah’s rights. Sarah is legally entitled to have her loans from this fraudulent school cancelled, and the Department of Education’s refusal to acknowledge that she is entitled to loan cancellation is shameful. We will fight the Department of Education as it continues to side with the predatory industry instead of the students and taxpayers it is charged with protecting.

Robyn Smith, of the Legal Aid Foundation of LA, is co-counsel with the Project on Predatory Student Lending in Sarah’s case.

Project on Predatory Student Lending Invites Secretary DeVos to Meet with Former For-Profit College Students

Betsy DeVos, Secretary of the U.S. Department of Education, will be speaking at Harvard University’s Kennedy School this Thursday, September 28th. In a letter to the Secretary, the Project on Predatory Student Lending has requested the Secretary meet with former students who have been harmed by the deceptive practices of for-profit colleges. The letter notes that “as the head of the Department of Education,” DeVos has “the legal authority to cancel the student debt that these borrowers face as a result of the fraudulent behavior of these predatory colleges.” Under DeVos’s leadership, the Department of Education delayed new borrower defense rules scheduled to take place July 1, 2017. These rules would have protected borrowers from deceptive practices in higher education, while making it more difficult for predatory schools to take advantage of students by, as one example, prohibiting the use of forced arbitration clauses that block students’ ability to sue their school in court.

DeVos has justified rolling back these protections by claiming, “Under the previous rules, all one had to do was raise his or her hands to be entitled to so-called free money.” This statement is a gross mischaracterization of borrower defense, and is completely out of touch with the reality facing students who have been targeted and ripped off by the predatory for-profit industry. Students face tremendous barriers in getting the Department to recognize their legal entitlement to loan cancellation. For example, Project client Sarah Dieffenbacher has petitioned the Department at least four times for borrower defense. Rather than cancel her loans, the Department used coercive measure to collect on them, including attempts at wage garnishment. Ms. Dieffenbacher, a single mother who was falsely told by Everest College that its paralegal program was accredited by the ABA and that she could transfer her credits towards a law degree, is in jeopardy of losing her car and her apartment because of the Department’s actions. Since DeVos assumed the position of Secretary of Education, The Department of Education has not acknowledged a single borrower defense application, ignoring its legal responsibility to cancel student loan debt for students who were defrauded by the illegal and deceptive practices of for-profit colleges.

Borrowers are seeking recognition of their rights, not “free money.” In fact, the only “free money” at issue is the taxpayer money that flows into the coffers of predatory for-profit colleges. As the Project on Predatory Student Lending’s letter to DeVos states, “for-profit colleges are the most tax-subsidized of any private industry. More than $30 billion in taxpayer money goes to this industry each year in the form of federal student loans.” Billions of taxpayer dollars are funneled into fraudulent corporate profit while DeVos is doing nothing to prevent this abuse.

The Project on Predatory Student Lending asks that DeVos make time to meet with former students of for-profit colleges. After hearing firsthand about the tremendous harm caused by the for-profit college industry, the Project hopes that DeVos will re-think her policies to favor students and taxpayers, not corporate profits. The Boston Globe covered the request here.

AP Story Quotes LSC Attorney on Delay in Cancelling Predatory For-Profit College Loans

Tens of thousands of former students who say they were swindled by for-profit colleges are being left in limbo as the Trump administration delays action on requests for loan forgiveness, according to court documents obtained by The Associated Press. The Education Department is sitting on more than 65,000 unapproved claims as it rewrites Obama-era rules that sought to better protect students.

Alec Harris, a lawyer with Legal Services Center of Harvard Law School who is representing one such student – Sarah Dieffenbacher a single mother of four who owes $50,000 in student loans —  said the inaction could put his client and her children on the street. “This is a Department of Education that has seemingly sided with industry and stacked the deck against former students of predatory for-profit schools every step of the way,” Harris said.

Read More

Job Announcement: LSC’s Project on Predatory Student Lending Hiring for a Clinical Attorney

The Project on Predatory Student Lending seeks an outstanding experienced attorney to join our team this summer. The Project is committed to building and maintaining a diverse staff and an inclusive environment.

This position presents an opportunity to join an exciting and innovative project that provides much-needed services, the benefits of which will extend beyond our local community, to work in a dynamic public interest and clinical teaching law office, and to advocate on behalf of consumers harmed by fraudulent and deceptive practices.

Candidates must have a J.D. and be admitted to the Massachusetts bar or have the ability to receive temporary admission pursuant to Massachusetts Supreme Judicial Court Rule 3:04. Minimum of 3 years litigation experience required.

For more information, please see the posting here.

LSC’s Project on Predatory Student Lending and Public Citizen Sue to Stop Education Department’s Illegal Regulatory Delay

The U.S. Department of Education broke the law when it announced a delay of a rule designed to protect students defrauded by predatory for-profit colleges and career training programs, two borrowers said in a lawsuit filed today in the U.S. District Court for the District of Columbia. The borrowers are represented by Public Citizen and the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School.

The lawsuit was brought by Meaghan Bauer and Stephano Del Rose, former students of the for-profit New England Institute of Art (NEIA) in Brookline, Mass. They allege that NEIA, which is owned by Education Management Corporation (EDMC), engaged in unfair and deceptive practices against them and other students that left them with a useless education, few job prospects and a mountain of debt. The students intend to bring suit against the school for its conduct in court, on behalf of a class. They also have asserted a federal right to have the Education Department cancel loans that the students obtained to attend the school based on the school’s unlawful conduct. The lawsuit seeks to invalidate the Department’s delay of the rule, and would allow the rule to take effect for all borrowers.

Bauer and Del Rose had been counting on an Education Department rule finalized in November by the Obama administration that prohibits schools receiving federal funds from relying on forced arbitration clauses and class action bans to prevent their students from bringing their claims together and in court. This Borrower Defense rule would ensure that Bauer and Del Rose have their day in court in a suit against NEIA. The rule also would provide Bauer and Del Rose with new protections and transparency when the Education Department considers their applications to have their federal student loans forgiven.

The Borrower Defense rule was slated to go into effect on July 1. In May, however, a trade group brought suit to challenge portions of the rule. And last month, the Department of Education announced it would delay key parts of the rule until that litigation is over. It also announced that it would begin a new rulemaking to reconsider the rule. Under the terms of the law that governs the rulemaking, a replacement could not take effect for at least two years.

In another lawsuit filed today, a group of state attorneys general also has argued that the Education Department’s delay of the rule is unlawful.

Read the complaint and visit this page for more information about the case.

 

Court Orders Department of Education to Consider Student Loan Relief Application, Calling Request for Further Delay “Frivolous and in Bad Faith”

The United States District Court for the Central District of California issued an Order today that directs the Department of Education to rule on the loan relief application of a former Corinthian student that has been pending for over two years.  To date, the Department of Education has not ruled on thousands of applications for loan relief submitted by borrowers whose federal student loans were originated by private banks under the Federal Family Education Loan Program.

The Plaintiff, Sarah Dieffenbacher, filed her first application for loan relief in March 2015. Her loans went into default while her application was still pending.  In late 2016, Sarah received a notice that her wages would be garnished. She works as a home health care phlebotomist to support herself and her four children. She objected to the wage garnishment because the terms of her loan and federal law both provide that Corinthian’s fraudulent actions render her loans unenforceable. She asked the Department to hold the hearing on her objections to which she was entitled.

After the Department of Education overruled her objection, citing the fact that her file included a signed loan contract, and ordered the garnishment to go forward, Sarah filed a lawsuit against the Department in March.  Represented by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, she argued that the Department did not consider the arguments or evidence she presented before rejecting her claim. As the Court noted, her application was supported by 254 pages of exhibits, which included a sworn statement from Sarah as well as records from the Attorney General of California regarding documented misconduct on the part of Everest and its parent company.  The Department also did not provide Sarah with the requested hearing before issuing a summary denial.

In response to the lawsuit, the Department filed a motion asking that the Court refrain from examining the case altogether.  The Court ruled that this request was not based on a “substantial or legitimate concern” but rather was “both frivolous and in bad faith,” and “appears to be an attempt to evade judicial review so that it can retain the ability to garnish Plaintiff’s wages without a conclusive ruling as to the enforceability of her loans.”  Under the ruling, the Department now has ninety days to provide Sarah with a conclusive ruling on her application for loan relief.  Responding to the ruling, Sarah said, “I’m fighting for myself, but also for so many others who were defrauded by for-profit schools.  I hope this case will put pressure on the Department to do the right thing.”

This ruling comes amidst growing concern that the Department of Education is refusing to take actions required by law and its own regulations designed to wipe out student loan debts that are the product of fraud and illegal activity by predatory schools.  Tens of thousands of applications for relief based on the fraud of Corinthian and other for-profit schools have been pending with the Department for months and even years.  “Today’s ruling confirms that student loan borrowers have rights that exist independently of political winds and caprices.  It is inexcusable to delay and thereby deny Sarah and other borrowers in similar positions their contractual and statutory rights,” said Toby Merrill, director of the Project on Predatory Student Lending and one of the lawyers representing Sarah.

Additional Information

Ms. Dieffenbacher is also represented by Alec Harris, Eileen Connor, and Deanne Loonin of the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, as well as Robyn Smith of the Legal Aid Foundation of Los Angeles.

Click here for a copy of the Court’s Order.

Click here for the Project’s press release about the Order.