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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.