Sarah Dieffenbacher, who attended a Corinthian-owned school in California, sued the Department of Education after it unfairly tried to garnish her wages, over her objection, to collect on debts that should have been cancelled. In fact, Sarah had already asked the Department to cancel the debts four times over two years, and the Department did not respond to any of those requests before trying to take her earnings. Sarah is represented by the Project on Predatory Student Lending and the Legal Aid Foundation of Los Angeles, in the Central District of California.

Background

In 2007, Sarah started a paralegal program at Everest College-Ontario Metro, in Ontario, California. Everest was part of Corinthian Colleges, Inc., a notorious chain of for-profit schools that shut down and filed for bankruptcy in 2015 amidst findings of widespread fraud. Everest lied to Sarah about her job prospects after attending, its career assistance, its program quality and career training, the transferability and usefulness of its credits, and its program cost. Sarah borrowed about $50,000 in federal student loans to attend. After graduating from Everest, Sarah was unable to find a job she had trained for, and quickly fell behind on her loan payments. As a mom of four, she needed all of her income to support her family.

Because Everest’s unfair practices toward Sarah violated California law, Sarah is entitled to have her loans discharged. This right, often called “borrower defense” or “borrower defense to repayment,” is included in twenty-year-old Department of Education regulations as well as her loan contract, also known as her “Master Promissory Note.” In 2015, Sarah applied for a borrower defense loan discharge because of her school’s misconduct. She defaulted on her federal student loans while waiting for a response to her application.

In 2016, Sarah received a notice that her wages would be garnished to pay her student loans unless she filed an objection. Sarah objected and requested a hearing because her loans should have been discharged. Her objection included a 29-page letter explaining why her loans are not legally enforceable and 254 pages of exhibits, including a sworn statement from Sarah and records from the Attorney General of California documenting misconduct by Everest and its parent company, Corinthian. Sarah also submitted another loan discharge application using the Department’s own form for Corinthian students,

In January 2017, the Department of Education issued decision denying Sarah’s objection and ordering wage garnishment. The Department concluded that Sarah’s “student loan debt is still legally enforceable.” However, the Department did not address Sarah’s arguments or evidence, saying only that Sarah signed a loan contract when she borrowed her loans. The Department told Sarah that if she disagreed with its decision, she could bring a lawsuit in federal court to get it reviewed. In February, her employer received a letter ordering wage garnishment.

On February 23, 2017, Sarah filed a lawsuit in federal court challenging the Department’s wage garnishment decision. She asked the court for an emergency order to stop the garnishment from taking place until her case was heard. In her lawsuit, Sarah explains that the Department’s decision is “arbitrary, capricious, and contrary to law” because it does not consider her arguments or evidence. She asks the Court of set aside the Department’s decision because her loans are not legally enforceable.

Updates About This Case

  • After Sarah filed her case, the Department agreed not to try to garnish her wages while the case is pending.
  • Instead of answering her complaint, the Department asked the court for “voluntary remand,” arguing that it wanted another chance to consider Sarah’s application. Sarah opposed the motion—the Department had already had two years of chances, and didn’t promise to make a better decision. On June 9, the Court agreed with Sarah and denied the Department’s motion for voluntary remand because the request “appears both frivolous and in bad faith.” The Court gave the Department 90 days to issue a final decision regarding Sarah’s loan cancellation application. Read our blog post about this decision here, and the decision itself here.