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.