Project on Predatory Student Lending

Delay. Delay. Delay. The Department of Education Appeals Preliminary Injunction Order and Moves to Stay Litigation Pending Appeal: 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. On June 19, 2018, the Court clarified that that the order stops all collection efforts on all Direct Loans that are infected with Corinthian’s fraud. The Order will last until the Department proposes, and the Court approves, a new policy for loan relief.

On July 24, 2018, the Department informed the Court that it was appealing this decision to a higher court for review: the Ninth Circuit Court of Appeals. Two days later, the Department filed a motion requesting a “stay pending appeal.” In other words, they’re asking that the Judge hold off on any further litigation until the Circuit Court reviews the preliminary injunction order. We’ve opposed that request and are awaiting a decision from the Judge.

The Department’s decision to appeal and its attempts to delay this case harms the very borrowers it should be protecting. The Department’s violation of the law is clear and its only strategy is to try to delay this case. We hope that the Department will eventually come to its senses and cancel all Corinthian borrowers’ debt. Until then, we will highlight the Department’s unlawful conduct on appeal and attempt to move the litigation forward.

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.

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. You can also find out if you are a member of the class by clicking here.

What is an appeal?

The federal court system is made up of several different layers: trial courts that initially hear a case, a regional appellate court that reviews the trial court’s decision, and the U.S. Supreme Court. The preliminary injunction order in this case was issued by a trial court. The Department of Education has asked that the regional court of appeals that covers California (the Ninth Circuit Court of Appeals) review the trial court’s order on the preliminary injunction. A three-judge panel will review the decision on appeal and could take anywhere from 6-months to a year to do so. Once they issue their decision (either agreeing or disagreeing with the trial court Judge), the case will return to the trial court for further proceedings.

What is a stay of litigation pending appeal and does it impact the preliminary injunction?

A stay of litigation pending appeal stops the litigation from moving forward while the appeal is ongoing. A stay of litigation pending appeal will not impact the preliminary injunction order. Here, the Department has asked the Court to halt all further litigation until the appellate court weighs in, but it is still required to comply with the preliminary injunction order during the appeal.

What happens next?

At the trial court level, we’re going to fight to try to keep the case moving forward so that we can quickly resolve the case after the appeal is resolved. If we succeed, the court will decide whether Plaintiffs can pursue the matter as a class action and whether the Department has to turn over certain documents. If we don’t succeed, the litigation will be on hold pending the higher court’s decision on the preliminary injunction.

Regardless of what happens at the trial court, the appeal will move forward. On appeal, the Department will file its initial brief in early September, we’ll respond in early October, and the government will file a reply brief three weeks later. The Court will then set a hearing date and will issue a written opinion at any point after the oral argument.

Project on Predatory Student Lending Partners with Lawyers’ Committee on Harvard Law Review Blog Post

Project attorneys Toby Merrill, Eileen Connor, and Josh Rovenger, along with Brenda Shum and Genevieve Bonadies of the Educational Opportunities Project at the Lawyers’ Committee for Civil Rights Under Law, recently published an article on the Harvard Law Review Blog. “For-Profit Schools’ Predatory Practices and Students of Color: A Mission to Enroll Rather than Educate” details the deceptive tactics for-profit colleges use to target students based on race, and the harm caused to those students after they enroll.

For more information about racial justice and for-profit colleges, visit our racial justice page.

Department of Education’s Proposed New Borrower Defense Rule Enables Predatory For-Profit Colleges and Harms Students

Yesterday, the Department of Education proposed a new borrower defense rule that strips away borrower rights, encourages the predatory behaviors of bad actors in higher education, and once again, benefits the for-profit college industry instead of students.

This proposed rule is a clear attempt to stop cheated students from asserting their legal rights. It encourages abusive and predatory institutions to continue to rip off students with impunity, while slamming the door on the debt relief that Congress has instructed the Department to provide to cheated students.

The Department’s proposal reflects its unfounded belief that the interests of institutions, taxpayers, and borrowers are opposed to one another. In fact, when institutions are not trying to profit off of federal student aid, those groups have shared interests. Instead of punishing students for supposed failures of personal accountability, the Department ought to look in the mirror. The Department alone has the power and ability to prevent predatory actors from cheating students and stealing taxpayer money.

The Project on Predatory Student Lending is the leading legal advocate for students cheated by for-profit colleges. In ITT’s bankruptcy in Indianapolis, the Project represents 750,000 former ITT students whose claims the Department has largely ignored. In a California federal court, the Project stopped the Department from using its illegal “partial denial” rule, which limited the relief for Corinthian students with approved borrower defense claims. And in D.C., the Project has challenged the Department’s illegal delay of the 2016 borrower defense regulations.

Information About Art Institutes Closures and Bankruptcies

Posted July 4, updated July 13, 2018

The Project on Predatory Student Lending is monitoring Dream Center’s recently-announced closure of 30 of the Art Institutes, Argosy University, and South University campuses that it owns and operates. We will update this page with the most current information available to us about the closures, the school’s previous owner’s bankruptcy, and Dream Center’s plan for enrolled students.

THE BASICS

Until several years ago, EDMC was one of the biggest for-profit school companies, and owned chains including the Art Institutes, Argosy University, and South University. It targeted low-income students, promising a quality education and career opportunities, and charged them high tuitions for sub-standard programs. After years of declining profits and trouble maintaining accreditation, EDMC began to sell its schools.

In 2017, EDMC sold most of its schools for $60 million to Dream Center Education Holdings, LLC, a subsidiary of a LA-based religious organization, the Dream Center Foundation. Dream Center is in the process of converting the schools from for-profit to non-profit status. Dream Center’s application to the Department of Education to approve the non-profit conversion is pending. If the conversion is approved, Dream Center-operated schools will be subject to even less federal oversight than they are currently. You can read more about the sale and proposed conversion in an earlier post here.

On Friday, June 29, 2018, Education Management Corporation (EDMC) and 58 related companies filed for bankruptcy. The bankruptcy filings include some of the campuses that EDMC sold and also some that it didn’t sell.

The bankruptcy filings say that EDMC does not expect to have any funds to distribute to “unsecured creditors.” In other words, it won’t have any money left at the end of the bankruptcy. In fact, EDMC says that it has between $0 and $50,000 in assets, but owes between $500 million and $1 billion. Its list of people and companies it owes money to is 1,500 pages long, and includes political campaigns, copy companies, and financial institutions. It will file more financial information in the coming weeks.

One of EDMC’s lawyers for the bankruptcy is Jay Jaffe, from the firm Faegre Baker Daniels LLP. Mr. Jaffe and Faegre Baker Daniels are also representing the estate of ITT Educational Services, Inc. (ITT Tech), in its bankruptcy, which was filed in September 2016. You can read more about the ITT bankruptcy and the Project’s representation of former ITT students here.

At the same time that EDMC filed for bankruptcy, Dream Center announced in an internal memo that it will close 30 of the campuses that it bought from EDMC just last year, including several Art Institutes campusesDream Center has since confirmed these plans, and blames declining enrollment and an increased demand for online education for the closures.

Although we’re not yet sure what, if any, connection exists between EDMC’s filings and the Dream Center’s closures, it is clear that both corporations are acting to protect their own interest while further harming their former and current students.

Dream Center has provided limited information about the closures, but it has shared its plan for affected students. We have summarized its plan below. At the bottom of this post is a list of campuses that Dream Center has said it will close.

INFORMATION ABOUT SCHOOL CLOSURES

HOW THE CLOSURES WILL AFFECT STUDENTS WHO ARE CURRENTLY ENROLLED

Through leaked Dream Center memos and accounts and forms shared by current students, the Project on Predatory Student Lending has learned that Dream Center is giving students at closing campuses 5 options. Here is what we’ve learned, some information about loan cancellation, and important things to keep in mind until we learn more. A full list of affected schools is at the end of this post.

Options For Students at Closing Schools

Dream Center announced that students may choose from the following 5 options for how to continue their education:

-Complete your degree at your current campus by the end of 2018, when the campus will close

-Complete your degree via the Art Institutes Online

-Complete your degree at another Art Institutes campus

-Complete your degree at another Dream Center school, either Argosy University or South University

-Transfer to another, unspecified university outside the Dream Center network of schools

Dream Center is trying to convince students to accept these options by offering a 50% tuition reduction to students who remain at a Dream Center school and a $5,000 tuition grant to students who transfer to one the unspecified other schools.

We have not been able to determine what will happen to students who choose not to accept these options, but it is likely that they will be automatically withdrawn from their program.

Students should not let Dream Center trick them into accepting these offers before they have all the information they need to make an informed decision! Only accept an offer once you have all the information and if it’s the best option for you.

As part of these offers, Dream Center will make students sign acknowledge forms and waivers that will relieve it of any responsibility it owes to students and may prevent students from receiving relief from their federal loans in the future.

Students should not sign anything until they have read it carefully, had all of their questions answered, and decided that what the best decision is for them!

Dream Center is Trying to Deprive Students of Their Right to Loan Cancellation

The federal government has a program called the Closed School Discharge program that will cancel federal student loans when students’ schools close. It is only available to students who are enrolled when the school closes or who had withdrawn within 120 days of the school closure. Students who accept an offer to continue their education somewhere else when their school closes do not qualify for Closed School Discharges.

In a public disclosure, the Higher Learning Commission, an accrediting agency that oversees two Dream Center campuses in Illinois and Colorado, recognizes that these schools are “at risk of closing” and urges students to be aware of Closed School Discharges. Dream Center does not want its students to get Closed School Discharges! That’s because they will have to pay back the government for each loan that is cancelled from its schools.

Dream Center timed its closings so that anyone who withdraws will do so more than 120 from the closing, and is using tuition discounts to convince students to stay enrolled. These are both ways to prevent students from qualifying for a Closed School Discharge. This is not right!

Important Information for Students

There’s still a lot that we don’t know about Dream Center’s plan to close its school, and how that will affect students’ rights. While we wait to learn more, it is important for affected students to ask questions, share information, and protect themselves. Here are a few specific things you can do:

-Ask your school for to be placed on a formal leave of absence. Dream Center schools may not agree to give leaves of absence, but if they do it may help buy some time and maintain students’ eligibility for Closed School Discharges

-Do not sign anything without reading it completely, getting all of your questions answered, and understanding how it affects your right to a Closed School Discharge or to enforce your rights against your school. Dream Center might try to have you waive your rights. Do not do that without understanding the full impact of that decision, which will vary student by student.

-Share your experience and information!! There are 1000s of students across the country that are affected by this. Join Facebook groups. If you receive information from your school, share it!

-Visit the Debt Collective website and learn how borrowers across the country are fighting back against bad schools and unfair and illegal debt.

-Continue to visit this blog for updates.

-Contact your U.S. representative or senator and let them know what’s happening! Demand that they pressure the Department of Education to declare that all students affected by these closures are eligible for Closed School Discharges unless they WANT to accept Dream Center’s offers.

EDMC’s Bankruptcy May Limit Students’ Ability To Recover From Their Schools

For former students of EDMC-operated schools, EDMC’s bankruptcy may limit their ability to seek recovery directly from their school, even in arbitration. Former students may wish to file claims in one or more of the bankruptcy cases; more information will follow in the coming days.

Please visit the Federal Student Aid website, the Debt Collective, or contact the Project on Predatory Student Lending (that’s us!) to learn more.

The Project on Predatory Student Lending is fighting for and with students who have been cheated by the predatory federally-funded colleges. We are monitoring the EDMC filings and Dream Center closures and will provide updates for affected students as soon as possible.

List of Affected Schools

ART INSTITUTES

CAMPUSES SOLD TO THE DREAM CENTER

The Dream Center will cease enrollment at the following 18 Art Institutes campuses:

Arizona: Phoenix
California: Inland Empire/San Bernardino, Orange County/Santa Ana, Sacramento, San Francisco
Colorado: Denver
Florida: Fort Lauderdale
Illinois: Chicago, Schaumburg
Indiana: Indianapolis
Michigan: Detroit
North Carolina: Charlotte, Raleigh-Durham
Oregon: Portland
Pennsylvania: Philadelphia
South Carolina: Charleston
Tennessee: Nashville
Virginia: Arlington

The Dream Center will continue to operate the following 12 Art Institutes campuses:

California: Hollywood, San Diego
Florida: Tampa
Georgia: Atlanta
Nevada: Las Vegas
Pennsylvania: Pittsburgh
Texas: Austin, Dallas, Houston, San Antonio
Virginia: Virginia Beach
Washington: Seattle

All other Art Institutes were not sold to Dream Center and have closed.

Argosy

THE DREAM CENTER WILL CEASE ENROLLMENT AT THE FOLLOWING 10 ARGOSY CAMPUSES:

California: Inland Empire, San Diego, San Francisco
Colorado: Denver
Florida: Sarasota
Illinois: Schaumberg
Tennessee: Nashville
Texas: Dallas
Utah: Salt Lake City
Washington: Seattle

South

THE DREAM CENTER WILL CEASE ENROLLMENT AT THE FOLLOWING 3 SOUTH CAMPUSES:

Michigan: Novi
North Carolina: High Point
Ohio: Cleveland

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

UPDATED – 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. On June 19, 2018, the Court clarified that that the order stops all collection efforts on all Direct Loans that are infected with Corinthian’s fraud. The Order will last until the Department proposes, and the Court approves, a new policy for loan relief.

The judge issued this Order after finding 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. We hope that the Department will ultimately abandon its ill-advised policy of partial relief and return to the prior established policy that recognized that Corinthian loans are not valid obligations.

Read the decision here (pdf) and the clarified order here. 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 clarified that this order is not limited to the Named Plaintiffs, but applies to all Direct Loans that are infected by Corinthian’s fraud. The Court put the Department on a short leash, banning these collections until the Department presents and the Court approves a new procedure.

The Department has not indicated whether it will immediately appeal this decision. If the Department does appeal, Plaintiffs are confident that the Ninth Circuit will also find the Department’s unlawful data experiment illogical, and its continued attempts to harm Corinthian borrowers egregious.  The case will also now move forward to determine whether Plaintiffs can pursue the matter as a class action. A hearing on that motion will occur in San Francisco on September 17, 2018.

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.

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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.