Challenge to Secrecy of Recruitment Records from For-Profit Education Company

The Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Public Justice asked a federal judge on Friday, December 16, for access to documents that are likely to reveal for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

A few years ago, the federal government, along with several states, sued EDMC, whose four large chains of for-profit schools include the beleaguered Art Institutes, alleging that it violated state and federal law and then lied about it to get government funding.  The government claimed that EDMC illegally paid its recruiters based on the number of students they could enroll, a practice prohibited by federal law.  EDMC, the government alleged, “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up. To maximize enrollments, the lawsuit alleged, EDMC taught its recruiters to exploit prospective students’ vulnerabilities, and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, much less than the $1.47 billion the company received in taxpayer-funded federal student grants and loans in the 2014-2015 year alone.  But as part of discovery in the suit, EDMC produced a lot of documents that we believe will shed light on their recruitment practices. “The documents from this lawsuit are likely to strengthen claims for relief of hundreds, if not thousands, of former EDMC students,” said Amanda Savage, one of the attorneys representing the debtors.

Former students of the Art Institutes and other EDMC-owned chains want these documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have so far been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to corroborate their claims of misconduct.

“While taxpayers spent hundreds of millions of dollars funding what the Department of Justice has called EDMC’s ‘recruitment mill,’ the borrowers who attended these schools have yet to obtain federal debt relief,” said Public Justice attorney Jennifer Bennett.

Before filing this lawsuit, the Project tried to get these documents showing EDMC’s predatory recruitment practices through federal and state freedom of information requests, but its request was denied in part because of a protective order in the case. The Project asked a federal judge to rule that the protective order does not shield the documents.

Documents Related to This Case

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.

Class of Former ITT Students File 7.3 Billion Dollar Claim in ITT Bankruptcy

On January 3, 2017, a group of former ITT Tech students moved to intervene in ITT’s bankruptcy proceedings in the Southern District of Indiana. They seek to act as representatives of hundreds of thousands who have been defrauded by ITT.

Along with legal documents, the students filed over a thousand pages of first-hand accounts from students who attended ITT, affidavits from several whistleblowers, and evidence developed from state and federal law enforcement investigations. The CFPB and multiple state attorneys general are also parties in the bankruptcy proceedings.

For more information on the student intervention, including all of the documents that were filed, background on ITT, and explanations of the legal actions taken today, click here.

Project on Predatory Student Lending Seeks an Intern

The Project on Predatory Student Lending is seeking an intern to begin in January or February of 2017. Responsibilities will include interacting with clients, organizing and analyzing case files, and working with attorneys and clients to confirm facts, obtain documents, and create affidavits. A commitment of 7 to 15 hours per week at the Legal Services Center is preferred.

This is a great position for undergraduate students interested in law and social justice.

Ideal applicants will have excellent written and oral communication skills, cultural competency, attention to detail, and excellent judgment. An ability to speak Spanish is appreciated but not required. Legal experience is not required.

Interested candidates can find more information about the internship here.

Department of Education’s Latest Borrower Defense Report Reveals Unfair & Unjustified Limitation on Relief

As lawyers who work with people who have been defrauded by for-profit schools, we support the U.S. Department of Education in its stated mission to “make the process of forgiving loans” for such students “efficient, transparent, and fair—and to ensure students receive every penny of relief to which they are entitled under law.”  These were the words of U.S. Education Under Secretary Ted Mitchell, when he announced on June 25, 2015 that the Department designated a Special Master to oversee debt relief for borrowers defrauded by Corinthian Colleges.

Indeed, parts of the final borrower defense rule released by the Department today are positive steps toward providing relief to defrauded students and preventing fraud and abuse of students and taxpayers by unscrupulous schools.  Notably, the Department has banned the use of forced arbitration agreements that serve to suppress the claims of students and mask illegal behavior; identified circumstances that will require schools to post letters of credit when warning signals indicate that the school may be violating the law; and sketched the outlines of a process that has the potential to create a path to relief for individuals and groups of defrauded borrowers.

The Project and other members of the legal aid community submitted comments asking the Department to strengthen this rule and make it more transparent and fair.  Most of our suggestions were not adopted.  In one area in particular—the application of statutes of limitation to a borrower’s ability to recover money already paid toward an illegitimate debt—the Department has departed in an inexplicable and inexcusable way from its commitment to giving defrauded students “every penny of relief to which they are entitled.”

The Department has decided that borrowers can only receive a refund of money already paid on a loan if they raise a claim within six years.  More troubling, in the Report issued today by the Department’s Borrower Defense Unit, the Department has announced that 293 claims from Corinthian borrowers – based on misrepresentations made about the general transferability of credits – are “eligible for relief subject to the applicable state statute of limitations.”  Although it is not entirely clear what this language means, it appears that the statute of limitations will act as a bar to the return of money these borrowers already paid towards Corinthian debt.

This is a mistake that the Department should fix.  Its application of a statute of limitations is entirely discretionary.  In crafting its new rule, the Department had the choice whether to impose such a requirement.  And even for loans already issued, the Department’s regulations clearly specify that once a borrower establishes a defense to the repayment of a loan, the Department may award additional relief, including the return of amounts already paid.

A statute of limitations serves a purpose in the law. It can give private parties comfort that what is in the past is in the past. It also encourages those with legal claims to come forward, while evidence is still fresh.  But there is absolutely no basis for punishing borrowers with a statute of limitations on the theory that they have been sitting on their rights.  As the Department has acknowledged, it needed to undertake this rulemaking precisely because, despite the decades-long existence of borrowers’ right to a defense to repayment, it had failed to enact procedures or notify the borrowing public of how to avail itself of this right.  In fact, it was only in August 2014 that the Department publicly acknowledged that although regulations “explicitly provide” for borrowers in default to assert defenses to repayment, “a borrower who is not in default can also assert a claim that the loan is not legally enforceable.”  This was in response to requests for information regarding Corinthian from Senator Elizabeth Warren and others.

Even if the Department were bound to apply a statute of limitations to limit recovery for defrauded borrowers—and it is not—its limited statements give no indication of exactly how it proposes to apply it against individual borrowers.  As announced today, in the new regulation, the Department abandons longstanding state consumer protection law as the substantive basis for borrower defense, determining that state law is too “complicated, uneven, and burdensome.”  This is exactly the problem with applying statutes of limitation to existing loans.  State laws vary in their application of statutes of limitation, both in length of the time period and circumstances in which a claim is barred.  In addition, equitable doctrines provide for the tolling, or pausing, of a statute of limitations in circumstances where a defendant fraudulently concealed the basis of a claim.  In other instances, a statute of limitations clock will not even begin to run until the claimant “discovers” that she or he has a claim. In the circumstance cited by the Department, a person who attended Corinthian because they were lied to about the possibility of transferring credits to another institution may have only discovered that this was a lie when they attempted to transfer credits and were denied.  How will the Department engage in this analysis for each individual, especially when it has not made clear to applicants that such evidence is needed?

These problems highlight three steps that are absolutely critical if the Department is to make good on its promise to give borrowers all of the relief to which they are entitled.

First, the Department should abandon any imposition of a statute of limitations on borrower defense claims. Borrowers who submit discharge claims years after enrolling in a predatory school do so because they were not previously aware of the scope of their school’s misconduct, or of their rights and how to pursue them. This fact is regularly borne out in our experience working directly with student loan borrowers who have suffered for years after being taken advantage of by their schools without realizing they had a right to have their loans discharged. It is also demonstrated by the Department’s own acknowledged difficulty reaching people who are eligible for discharge based on its findings and informing them of their eligibility, as reflected by the low percentage of borrowers who have managed to obtain the relief for which they are eligible.  The public should be appalled at the idea that, because a borrower happened to make payments, or involuntarily surrendered a tax refund, including an Earned Income Tax Credit, in service of a debt that is now acknowledged to be the product of illegal fraud, the Department would choose to keep that money.

Second, the Department should immediately implement a moratorium on collection of all Corinthian debt.  As the Department’s report shows, only 12% of those who are in the presumptively eligible category (the “findings” students), have submitted the attestation form that the Department requires before it will consider actually delivering relief.  This is despite the massive outreach efforts the Department has undertaken.  A recent letter from Senator Warren exposes that nearly 80,000 former Corinthian students are currently in some form of debt collection as the direct result of Department actions.  Others, including The Institute for College Access and Success have called for a moratorium on collection.  And last month, the Project asked a federal court to declare that such a moratorium is required under law.  Continued collection on Corinthian borrowers is especially perverse given that the Department has taken a hard stance against returning this money once a borrower actually applies for relief.

Third, the Department needs to implement relief on an automatic basis where the evidence supports widespread fraud, as it clearly does in the case of Corinthian.  The Department has this authority, under existing law and under a fair interpretation of the forward-looking rule it just announced.  Rather than spending effort and resources on Facebook campaigns, and rather than engaging the army of lawyers and contractors required for a case-by-case analysis of the equitable imposition of a statute of limitations, the Department should take action across the board to bring desperately needed relief to borrowers.

Lawsuit Against U.S. Departments of Education & Treasury

A former student of Everest Institute filed a lawsuit yesterday in federal court to challenge the government’s continued collection of defaulted federal student loans from low-income people who borrowed in order to attend a school operated by the disgraced and defunct Corinthian Colleges chain. The Project on Predatory Student Lending, part of the Legal Services Center of Harvard Law School, represents the plaintiff in this lawsuit, Darnell Williams.

Mr. Williams, a resident of Dorchester, Massachusetts, attended a massage therapy program at Everest Institute, formerly located in Chelsea, Massachusetts. The lawsuit alleges that the government has been illegally seizing funds from borrowers who have defaulted on their loans from Corinthian schools. Although the government has broad powers to collect on defaulted federal student loans, it may not seize funds from borrowers when it knows that the defaulted student loan debts are not legally enforceable due to a school’s fraud.

The government has already acknowledged the widespread fraud at Corinthian schools. Speaking earlier this year, Secretary of Education John King Jr. stated that, “[w]hen Americans invest their time, money and effort to gain new skills, they have a right to expect they’ll get an education that leads to a better life for them and their families. Corinthian was more worried about profits than about students’ lives.”

Mr. Williams is not the only Corinthian borrower affected by the government’s refusal to stop seizing money from borrowers it knows were defrauded. Massachusetts Senator Elizabeth Warren released shocking information in a letter to Secretary of Education King this morning that the Department of Education, with the assistance of Treasury, is collecting from nearly 80,000 former Corinthian students, a figure that does not include collections against students who defaulted on loans borrowed to attend Corinthian before July 2010.

In calling attention to the data and the Department’s general inability or unwillingness to grant relief to Corinthian borrowers, Senator Warren stated, “[i]t is unconscionable that instead of helping these borrowers, vast numbers of Corinthian victims are currently being hounded by the Department’s debt collectors — many having their credit slammed, their tax refunds seized, their Social Security and Earned Income Tax Credit (EITC) payments reduced, or their wages garnished — all to pay fraudulent debts that, under federal law and the Department’s own policies, are likely eligible for discharge and thus, invalid.”

Click here to read the complaint.

Project on Predatory Student Lending Comments on Proposed Borrower Defense Rule

On August 1, 2016, the Project on Predatory Student Lending of the Legal Services Center, in partnership with the National Consumer Law Center, submitted comments on behalf of legal aid providers to the U.S. Department of Education about its proposed regulations on when and how defrauded student loan borrowers can obtain relief on the federal student loans they borrowed to attend predatory schools.

As detailed in our comments, we support aspects of the proposed Borrower Defense rule such as its move toward banning schools from including forced arbitration, its mechanism for providing relief to entire groups of students in cases of widespread wrongdoing, and its provisions that will help borrowers whose schools have closed while they were in attendance.

We also urge the Department to improve other aspects of the proposed rule, by ensuring that borrowers retain the protections of their state’s consumer protection laws, ensuring that the rule does not unfairly and arbitrarily limit the loan forgiveness available to borrowers whose rights have been violated, restoring the ability of state attorneys general and legal aid advocates to petition the Department for relief on behalf of a group of students, and by providing a fair and reasonable process for borrowers with FFEL (bank-originated, government-backed) loans.

The comments share experiences and circumstances of the Project’s clients and clients of other legal aid organizations. They are low-income student borrowers who have been harmed by predatory practices of for-profit colleges, and come to us struggling to repay their student loans.

The Project also submitted a separate comment that provides additional context to the Department’s use of the term “educational malpractice,” and refutes the spurious argument that the proposed rule somehow opens the litigation floodgates for previously-unsustainable claims against schools.

Eileen Connor, the Project’s Director of Litigation, was a negotiator on behalf of legal aid providers who represent borrowers.

Project on Predatory Student Lending Attorney Eileen Connor Wins Major Second Circuit Victory against the Department of Education

Project on Predatory Student Lending Attorney Eileen Connor won her appeal against the Department of Education, contending that it should stop trying to collect on loans given to students who attended schools operated by Wilfred American Educational Corporation (Wilfred) because the Department knew that Wilfred routinely lied about student loan eligibility. The case is Salazar v. Duncan, No. 15-832-cv (2d Cir.).

The suit was filed on behalf of a class of former students of the Wilfred, a for-profit chain of cosmetology and business trade schools that 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.

In 2013, Eileen Connor and her colleagues at the New York Legal Assistance Group (NYLAG) sent the Department a request on behalf of twenty individuals who attended Wilfred schools in New York City, asking that the Department suspend collections and notify all Wilfred borrowers that they may be eligible to discharge their loans, as the Department was required to do by law.  The Department offered to notify only students who had attended Wilfred in Philadelphia.

The Department’s refusal to comply with the law, its own findings, and its own recommendations led Eileen to file suit in February 2014. The district court dismissed the borrowers’ claims, ruling that the Department’s refusal to notify borrowers was not final. The Second Circuit, however, vacated this ruling, finding not only that the Department’s refusal to notify borrowers was final and reviewable, but also that judicial review was especially appropriate given the collection powers the DOE exercised against the putative class members.

The Department of Education oversees schools’ ability to receive federal student loans, dispenses these loans to the schools, collects payments from students, and adjudicates students’ claims when schools break the law. Its systematic refusal to meaningfully notify borrowers of discharge rights that stem from its own failure to diligently constrain the predatory for-profit schools participating in the federal student loan program is one of the biggest barriers for individuals who need and are entitled to relief from fraudulently-induced loans. The Second Circuit’s ruling shows that, in carrying out each and every function related to the federal student loan program, the Department must at the very least follow the law and its own regulations.

The Legal Services Center submitted an amicus brief in support of the borrowers and proudly congratulates Eileen on her hard-fought victory for the rights of borrowers.

Press Coverage: Project on Predatory Student Lending Attorney Eileen Connor Featured in MarketWatch Article on Forced Arbitration

June 2, 2016
These Controversial Student Contracts May Soon Be Banned
by Jillian Berman

“The widespread use of arbitration clauses in enrollment agreements runs against the fundamental nature of higher education, Connor says. ‘No student is going to a school thinking ‘it is only a matter of time before I have a dispute that I need to involve a court in,’’ she said.”

Read Full Article Here

The Project on Predatory Student Lending Welcomes New Team

The Project on Predatory Student Lending (PPSL) welcomes eight new members; five attorneys, two paralegal advocates, and one project manager have joined the team:

The newest team members have worked on issues of consumer, criminal, juvenile, racial, and economic justice in organizations such as the National Consumer Law Center, CPCS, Pine Tree Legal Assistance, the Central American Solidarity Association of Maryland, the New York Legal Assistance Group, the United Nations, Girls Incorporated, Cambridge Women’s Center, and the Attorneys General of Massachusetts, and Colorado.

They join Eileen Connor and Toby Merrill in representing low-income student loan borrowers who have experienced predatory lending in connection with for-profit schools. Both the Project and the Legal Services Center are delighted  by the addition of these distinguished colleagues and excited for the work they will do on behalf of our clients.

Project Attorney Urges Department of Education to Prohibit For-Profit Colleges from Using Forced Arbitration to Hide Fraud and Deception of Students

Project on Predatory Student Lending Attorney Eileen Connor asked the Department of Education to use its current rulemaking process to prohibit colleges participating in the Federal Student Aid program from forcing students to settle disputes against the school through arbitration. Ms. Connor, along with Noah Zinner of Housing and Economic Rights Advocates, is representing the Legal Aid Community and the interests of their clients in the ongoing Negotiated Rulemaking.

Student borrowers who have been harmed by predatory institutions face significant barriers to raising claims and winning relief in arbitration, particularly because most predatory schools’ arbitration clauses prohibit class action suits and group claims, forcing borrowers to go it alone.  The proposal argues that predatory institutions use arbitration—a confidential, non-public dispute resolution process that favors corporations over individuals—as a means to cover up fraud and misconduct, as in the case of Corinthian Colleges. Yesterday, nine Senators made a similar request.

More information about the Negotiated Rulemaking can be found on the Department’s website here.