Project on Predatory Student Lending

Injunction Against Department of Education: What it Means and What Happens Next

On May 25, 2018, a federal court in San Francisco granted former Corinthian borrowers’ motion for a preliminary injunction in Calvillo Manriquez v. DeVosordering the Department of Education to stop using its “average rulings rule” immediately, and to stop collecting the loans of certain Corinthian borrowers. The judge found that the Department of Education had violated federal law by secretly and illegally using data from the Social Security Administration to partially deny individual borrower defense applications for thousands of Corinthian borrowers. The court also recognized the extraordinary harm that Corinthian borrowers are suffering at the hands of the government.

This preliminary injunction is a landmark decision, and it represents significant progress in the long fight to force the Department to recognize that it cannot continue to collect on predatory and fraudulent student loan debts. It also recognizes the extraordinarily lawlessness of the Department of Education, and finds that the Corinthian borrowers are likely to ultimately win their case that the Department of Education violated their rights in partially denying their claims. Read the decision here (pdf). Read coverage of this case and this ruling here.

What is this case about?

Calvillo Manriquez v. DeVos is a class action filed in December 2017 challenging the Department of Education’s unexplained, irrational, and abrupt change of course with respected to former students of collapsed for-profit Corinthian Colleges. Under the Department of Education’s watch, Corinthian took in billions in taxpayer money and used boiler-room-style high-pressure tactics and racially-targeted advertising to build its business, all while producing outcomes for students so terrible that it had to lie about them. Corinthian filed bankruptcy and its debts disappeared, but the students it cheated were left thousands of dollars in debt for an education they never received.

After previously acknowledging that Corinthian’s widespread wrongdoing entitled at least some former students to complete cancellation of their federal student loans, the Department stopped granting any cancellation at all, and then used data from the Social Security Administration and announced that it would cancel only a portion of these bogus debts.

What is the average earnings rule?

In March, years after deciding that these Corinthian borrowers deserve complete loan cancellation, the Department started partially denying loan cancellation to former students because their “average earnings” were not less than half of the “average earnings” of some unspecified group of students who went to a different, non-Corinthian school. In coming up with its murky and convoluted calculation, the Department secretly and illegally gathered information about borrowers’ earnings from the Social Security Administration (SSA). Perversely, the Department got this information from SSA by using an information sharing agreement intended to protect the public from predatory companies like Corinthian by measuring and publishing “gainful employment” metrics.

To compare the earnings from Corinthian programs to “comparable” programs that had passing gainful employment scores, the Department grouped 61,717 former students who applied to have their loans cancelled by 79 Corinthian programs they attended. The Department submitted identifying information (names, dates of birth, Social Security Numbers) from their loan cancellation applications to the Social Security Administration to obtain the data regarding the earnings of those students. In return, the Social Security Administration provided the Department with the “mean and median incomes” for each program group, based on data from 2014. The Department compared these mean and median incomes to unidentified “comparable” programs that had passing gainful employment scores.

Borrowers in programs for which the average Corinthian applicants’ earnings were more than half of the “comparable” programs were denied complete loan relief. Between 10% and 50% of their loans were cancelled. Because their applications for loan cancellation were partially denied, the Department told them, they must now start repaying their bogus loans.

What is the Privacy Act?

The Privacy Act is a federal law from 1974 intended to protect people when the government collects and uses their information. It prohibits one government agency from sharing individuals’ information with other federal agencies without meeting procedural safeguards that the Department of Education undisputedly ignored. Moreover, federal agencies may not use data matching programs of the type the Department of Education undertook to make decisions concerning the “rights, benefits or privileges of specific individuals.” Here, the information the Department of Education disclosed to the Social Security Administration was used to make a determination about a specific individual – how much of the borrower’s loan the Department would forgive.

How does the Department’s average earnings rule violate the Privacy Act?

The court found that the Department had clearly violated the Privacy Act by gathering applicants’ information from the Social Security Administration and using it to partially deny Corinthian borrowers’ requests for loan discharge. The decision is a significant blow to the Department’s attempts to backtrack on the complete loan cancellation due to Corinthian borrowers.

Who are the plaintiffs in this case?

The proposed class in this case is Corinthian borrowers who are covered by Department of Education findings that Corinthian violated the law by lying to them about the chain’s job placement rates. As the Department already decided, because the company lied to get them to enroll, their loans are invalid and unenforceable. There are several named plaintiffs representing the class. Read about them here.

What is a preliminary injunction?

A preliminary injunction is a tool to stop an illegal action or condition while the lawsuit is litigated, instead of waiting for the end of the lawsuit to get relief. The plaintiffs had to show that they are likely to succeed on the merits of their claim, that they would suffer irreparable harm if the court did not stop the Department, and that an injunction is in the public interest.

The court rejected the Department’s arguments that the plaintiffs were not suffering from the Department’s actions, finding them “meaningless given the dire financial circumstances that Plaintiffs describe. Given their financial situations, any additional dollar they are required to repay takes away from basic need for food and shelter.”

The court also rejected the Department’s arguments that “the relief Plaintiffs seek will divert resources from other educational programs, and that there is a strong public interest in saving funds.” To the contrary, “there is a strong public interest in ensuring that agencies comply with the law in enacting rules and regulations. ” Moreover, in a clear rebuke, the court responded to the Department, “Saving money does not justify a violation of the law.”

What is enjoined, and what happens next?

The court ordered the Department of Education to stop all use of the Average Earnings Rule immediately. The court also ordered immediate cessation of all attempts to collect Plaintiffs’ debt.

The court is considering whether to order the Department to award full and complete loan cancellation to Corinthian students. To that end, the Court is considering whether to order the Department to reveal certain internal documents. A hearing on these issues, and further injunctive relief, is set for June 4th at 2:30pm in San Francisco.

Project on Predatory Student Lending Hiring a Racial Justice Fellow

The Project on Predatory Student Lending is excited to announce a one-year fellowship! The racial justice fellow will develop cutting-edge litigation to combat the discriminatory efforts of current higher education policies, and lead outreach efforts by engaging with existing clients and community partners and forging new partnerships with communities impacted by the predatory for-profit industry.

For more information and to apply to the position, click here.

For more information on for-profit colleges and racial justice, click here.

When Student Debt is Not Only Predatory, But Racist

Predatory colleges exploit the promise of higher education by targeting African Americans and people of color with lies and deceptive marketing tactics.

An ad used to run on daytime TV: a young woman of color is talking about how she “has a young child” and needs to “hold down the household.” But this didn’t stop her from getting an education. So those like her should “get up” and call this college, where “a whole team of people” is waiting to help.

On the surface, it may seem like an inspirational ad tailored to a specific demographic. But when you consider that it was aired by the notoriously harmful for-profit Corinthian Colleges, it takes on a different tone.

Corinthian Colleges aggressively marketed itself to unemployed people with racially targeted campaigns. It spent over $600,000 for just two weeks of ads on BET. Nationwide, enrollment in Corinthian-owned schools was heavily African American and Latino (53%), and female (over 70%). In Massachusetts, the student body at Everest Institute (a Corinthian school) was 85% female, and a vast majority of the students were people of color. Corinthian spent far more money convincing people to enroll than it did providing quality job training. In fact, graduates of Everest programs earned less than the typical high school graduate in Massachusetts, but were left with devastating debt.

These tactics of racist targeting are standard operating procedure of federally-funded for-profit colleges. They are successful because higher education is held out as the path to the middle class. For generations, there have been public messages reminding the African American community in particular of the promise of higher education, from W.E.B. DuBois’s “talented tenth” to the United Negro College Fund’s “a mind is a terrible thing to waste” campaign. For-profit colleges take up this messaging, claiming to provide “access” to higher education when in fact they provide access to unpayable debt for programs people are more likely to drop out of than finish. Less than one in five students who enroll in a federally-funded for-profit school will ever graduate.

The debt associated with federally-funded for-profit colleges is not only predatory, it’s racist. That is because this industry targets its harmful products in explicitly racial terms. The industry claims to be increasing access to education and compares its schools to historically black colleges. Whereas historically black colleges are authentic cornerstones of the African American community, forged at a time when higher education was legally denied to people on the basis of race, corporations like Corinthian target people on the basis of race, blatantly exploiting and profiting off of inequality. Nobody should confuse these two types of institutions.

Among the more pernicious effects of the predatory for-profit college industry is that it compounds the effects of entrenched, systemic racism that has unfairly advantaged some while unjustly disadvantaging others.  African Americans who go to college end up with a disproportionate amount of federal student loan debt, and more loan defaults.  In fact, Department of Education statistics show that close to 70% of African Americans who borrowed to attend a for-profit college had defaulted on their loans a decade later. One reason that outcomes may be so poor is that less than a quarter of the money that federally-funded for-profit colleges raise from students actually goes to their education.  The rest goes to slick marketing and advertising, executive compensation, and profits for owners and shareholders.

Unpayable debt from a useless credential closes the path to the middle class for thousands of African Americans.  This is the opposite of what the federal student loan program ought to do.

 

Click here to see our page about the racial injustice of the for-profit college industry.

Partial Borrower Defense Denials Violate Due Process, Privacy Act: Injunction Sought Against DeVos, Department of Education

A court filing over the weekend revealed that the U.S. Department of Education secretly, illegally, and unconstitutionally used Social Security data to deny loan discharges to students cheated by Corinthian Colleges, Inc. Four borrowers, on behalf of a nation-wide class, seek an injunction to block the administration from applying its recently-announced plan to partially deny student loan relief to which defrauded borrowers are entitled, and that the Department had previously provided to certain cohorts of Corinthian borrowers through the borrower defense application process set up by the Department.

The motion for an injunction and amended complaint were filed in federal court in California as part of a class-action lawsuit brought by the former students of Corinthian-owned for-profit colleges. The borrowers and the putative class are represented by the Project on Predatory Student Lending of the Legal Services of Harvard Law School and Housing and Economic Rights Advocates.

“The Department of Education had already unfairly and unlawfully refused to cancel these bogus loans for so long,” Project on Predatory Lending attorney Joshua Rovenger said. “Now, it has secretly and illegally coopted Social Security data to try to argue for something less than the complete cancellation and refund that these borrowers are due. We are seeking to rescind these illegal partial denial notices that never should have been issued in the first place.”

Earlier this month, the Department notified certain former students that, because their “average earnings” were not less than half of the “average earnings” of some unspecified group of students who went to a different, non-Corinthian school, they must repay their loans. In coming up with this murky and convoluted calculation, the Department secretly and illegally gathered information about borrowers’ earnings from the Social Security Administration. Perversely, the Department obtained the data from SSA pursuant to an information sharing agreement entered into for the purpose of protecting the public at large from predatory institutions like Corinthian by publishing “gainful employment” metrics.

“This ‘average earnings rule’ is not only a theft of data, but more importantly, it is a fact-free attempt by the Department of Education to double cross borrowers who were scammed by Corinthian and then waited months or even years for the relief that the Department promised them,” said Noah Zinner, an attorney at Housing and Economic Rights Advocates who is representing plaintiffs.

For borrowers who were scammed by Corinthian and then waited months or even years for the relief that the Department promised them, the “average earnings rule” is yet another government-inflicted intensification of Corinthian’s harms.

One of the named plaintiffs representing the nation-wide class is Jennifer Craig of Baldwin Park, California. She attended a medical billing and coding program at the Corinthian-operated Everest College—City of Industry. Recruiters convinced her to enroll in the program with assurances that she would get a job, using falsified job placement statistics. Despite completing the program, she has never been able to get a job as a medical biller. She has only been able to get the same minimum-wage jobs that she worked at before going to Everest. She applied for cancellation of her loans in 2016, using an “attestation form” that the Department of Education created especially for Corinthian borrowers. Last week, she was informed by email (included in the filing) that the Department had applied its “average earnings” calculation, and she must repay 80% of her loans. She and her husband, who lost his job earlier this year, are barely able to make ends meet. They have three children, including a three-month old daughter.

Another family impacted by the Department’s actions are Zovinar Tchouldjian and Alina Farjian of Los Angeles. Alina, who submitted a declaration in support of the motion for preliminary injunction, attended Everest in Receda for medical assisting. Her mother, Zovinar, borrowed Parent PLUS loans to help pay for the program, despite her reservations that the school could support her daughter, who was in special education programs throughout her schooling. They were convinced by the job placement rates that Everest recruiters showed them. Alina has never worked as a medical assistant. She currently drives for Lyft. Both Zovinar and Alina applied to the Department for loan cancellation. Zovinar’s loans were completely cancelled months ago. Alina learned last week that the Department had used its “average earnings” rule to determine that she must repay 70% of her loan.

The plaintiffs are asking the court to order the Department to stop applying the Average Earnings Rule; to keep applying the Job Placement Rate Rule by granting complete relief to borrowers in the findings cohort; and to rescind the partial denials it has issued. The Department’s current conduct is illegal in numerous ways, including:

  • The Department’s failure to explain its rationale, its inability to provide borrowers with the data underpinning its calculations, and its illogical reliance on this data to decide individual claims violate the Due Process Clause of the Constitution and is arbitrary and capricious;
  • The Department’s capricious adoption of the Average Earnings Rule constitutes impermissible retroactive rulemaking in violation of the Administrative Procedure Act;
  • The Department’s abandonment of the Job Placement Rate Rule is arbitrary and capricious and denies class members the relief they have been promised and on which they relied; and
  • The Department’s use of average earnings violates the Privacy Act by secretly and unfairly deploying individuals’ information to determine their rights.

Massachusetts Senator Elizabeth Warren raised flags in January about the Department’s misuse of Social Security data in a letter to the Department’s Inspector General, asking for an investigation into the use of earnings data to make decisions on partial relief for defrauded student loan borrowers.

The borrowers and the putative class are represented by the Project on Predatory Student Lending of the Legal Services of Harvard Law School and Housing and Economic Rights Advocates. The First Amended Complaint is posted here, and the Motion for a Preliminary Injunction here.

About HERA

Housing and Economic Rights Advocates (HERA) is a California statewide, not-for-profit legal service and advocacy organization dedicated to helping Californians — particularly those most vulnerable — build a safe, sound financial future, free of discrimination and economic abuses, in all aspects of household financial concerns. It provides free legal services, consumer workshops, training for professionals and community organizing support, create innovative solutions and engage in policy work locally, statewide and nationally.

About the Project on Predatory Student Lending

Established in 2012, the Project on Predatory Student Lending represents former students of the predatory for-profit college industry. Its mission is to litigate to make it legally and financially impossible for the for-profit college industry to cheat students, and to relieve borrowers from fraudulent student loan debt.

The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt. It has also brought its clients’ experiences to bear on federal and state policymaking.

ITT Students’ $1.5 Billion Settlement Heard by Judge In Bankruptcy

Today, former ITT students proposed a $1.5 billion settlement claim in bankruptcy court that would cancel more than $500 million in debts. All participants in the case and members of the class have until April 24 to submit their views of the settlement with the court before it is heard for final approval on June 13.  This is good news for former ITT students, but there is still a long way to go.

ITT Tech systematically defrauded students. ITT lied to and misled students about financial aid and cost of attendance, job placement and salaries, the quality of equipment and experience of instructors, the employability of ITT graduates, ITT’s programmatic accreditation, the transferability of credits, and career placement assistance.

It would be simpler to list the things ITT didn’t mislead students about.

Data from 2014 show that on average, ITT graduates earn on average the same or less than high school graduates with no college education. Approximately one in five ITT students defaulted on their federal student loans within three years.

Now, a group of ITT students have reached a proposed a settlement with the bankruptcy estate that includes a $1.5 billion allowed claim. In addition to cancelling nearly $600 million in debts, the settlement would also return the $3 million that students paid directly to ITT after it declared bankruptcy. This landmark settlement shows that the only path forward is to cancel fraudulent and unenforceable debts created by predators like ITT.

The settlement is a good start, but there is still a long way to go to make things right for former ITT students.

More than 7,000 former ITT students have submitted borrower defense applications to the Department of Education to cancel their federal student loans. These loans – and the federal loans of all former ITT students, totaling nearly $4 billion – should be cancelled.  ITT’s estate has cancelled the student debts because of the school’s fraudulent actions, and it’s time for the Department of Education and all private holders of ITT debt to do the same.

As Paul Goodwin, a former ITT student, said: “I have still been struggling to pay back my student loans, which I should not even owe because of the way that ITT systematically lied to students. Getting more relief on temporary credit loans is great news for me and my family, but I am still waiting for the Department of Education to discharge my federal student loans.”

We will continue to fight for the Department of Education to meet its legal obligation to cancel these fraudulent student loans.

If you are a former student of ITT, click here to sign up for future updates.

Proposed Settlement to be Heard January 24

A year ago former ITT students filed a complaint against ITT and a class Proof of Claim in the ITT bankruptcy case. In this last year we have worked hard to fight on behalf of the Student Class, including urging the Trustee to stop collection on all debt owed directly to ITT.

Today we are happy to announce that a motion was filed asking the court for preliminary approval of a proposed settlement between the Student Class and the Trustee. The proposed settlement agreement would recognize a $1.5-billion-dollar claim against ITT by students who attended the school between 2006 and 2016, for widespread, systematic fraud and breach of contract. The Students’ allegations included ITT’s use of high-pressure sales tactics to get students to enroll and remain enrolled. It was also alleged that ITT deceived and misled students about financial aid options and costs of attendance, job placement and salary rates, the quality of equipment and experience of instructors, the desirability of ITT graduates by employers, ITT’s accreditation status, the transferability of credits, and career placement assistance.

Some Key Terms of the Agreement

  • All of the nearly $600 million in “temporary credits” — accounts the company claimed students owed directly to ITT — will be canceled. This settlement only cancels debts that were owed directly to ITT and does not affect private or federal student loans.
  • All of the almost $3 million students paid directly to ITT since ITT declared bankruptcy in September 2016 will be returned to students, and there will be accurate credit reporting showing that these accounts have been deleted or paid in full.
  • The Students’ Proofs of Claim will be allowed in the amount of $1.5 billion as unsecured claims. If at the end of the bankruptcy there is money in the estate to pay unsecured claims, the student class will receive a proportional share based on the size of the allowed claim. Any amount distributed to the student class will be divided among the entire student class, and the distribution must be approved by the court.
  • In exchange for the allowed claim, former ITT students give up their claims against the estate of ITT, and keep their rights to seek further relief from the Department of Education and private lenders.

The motion and the settlement agreement will go before the court for preliminary approval on January 24, 2018. If the court grants preliminary approval, there will be a period of time for student class members to review and comment on the agreement and also choose not to participate. After that, we will seek final approval of the settlement from the court.

In our view, the proposed settlement agreement is a victory for former students who were defrauded by ITT. However, we know that the student class still faces billions of dollars of federal and private student loans from ITT and we will continue fight for all ITT-related debt to be canceled.

Department of Education Illegally Slashes Debt Relief for Corinthian Borrowers

Martin was talked into WyoTech’s automotive technology program instead of community college. But the program was a complete fraud – he rarely touched a car while there, and the great jobs promised to him were unavailable. The Department of Education acknowledged that Martin was lied to and misled, and he applied to have his federal student loans from WyoTech discharged. Still, the Department has seized two years of Martin’s tax refunds and garnished his wages to pay back his federal loans from this fraudulent institution.

This isn’t just wrong, it’s illegal. By announcing that it was illegally attempting to slash the relief available to borrowers, the Department is engaging in the same bait and switch tactics as Corinthian—which owned Heald, Everest, and Wyotech.

That’s why this week, Martin and two other named plaintiffs filed a filed a nation-wide class action against the Department of Education for illegally and unfairly denying complete relief to tens of thousands of former Corinthian students who the Department already decided are entitled to have their loans discharged and their payments refunded.

The borrowers are represented by the Project on Predatory Student Lending at the Legal Services Center of Harvard Law School, and Housing and Economic Rights Advocates of Oakland, California.

The three named plaintiffs in this suit are just three of many thousands of people who have experienced the systematic exploitation and fraud that for-profit colleges have engaged in –fraud that is enabled by taxpayer funds and the Department of Education.

  • Martin Calvillo Manriquez barely had an opportunity to touch cars or car parts while he was enrolled in his automotive program. The school didn’t have tools or certified instructors. Martin has never had a job related to auto repair. His debt from Corinthian is the only line on his credit report.
  • Rthwan Dobashi owes more than $20,000 for the same program. He has also never worked in the field. He is married, has two children, and is expecting a third. In early 2016, he found out from the attorney general that he was eligible to have his debts from WyoTech cancelled, and he applied. He also told one of his friends from school, and his friend applied, too. His friend’s loans were discharged almost a year ago, while Rthwan still hasn’t heard anything from the Department.
  • Jamal Cornelius attended the Information Technology-Emphasis in Network Security program at Heald College, and borrowed more than $25,000. He has been waiting more than fourteen months for any response to his application for relief.

All three borrowers, and all class members, are entitled to relief pursuant to the Department’s Corinthian Job Placement Rate Rule, which it has established through countless public statements, previous discharges, and direct notice to tens of thousands of covered individuals.

After we filed this case, the Department announced that it would slash the loan cancellation for defrauded borrowers who attended schools owned by Corinthian Colleges – departing from the established rule and illegally applying changes retroactively. It is completely unlawful for the Department to go back on its word in this way.

These students were already lied to by Corinthian. Now they have been lied to by the federal government, too.

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.