student loan debt

Court Orders Department of Education to Consider Student Loan Relief Application, Calling Request for Further Delay “Frivolous and in Bad Faith”

The United States District Court for the Central District of California issued an Order today that directs the Department of Education to rule on the loan relief application of a former Corinthian student that has been pending for over two years.  To date, the Department of Education has not ruled on thousands of applications for loan relief submitted by borrowers whose federal student loans were originated by private banks under the Federal Family Education Loan Program.

The Plaintiff, Sarah Dieffenbacher, filed her first application for loan relief in March 2015. Her loans went into default while her application was still pending.  In late 2016, Sarah received a notice that her wages would be garnished. She works as a home health care phlebotomist to support herself and her four children. She objected to the wage garnishment because the terms of her loan and federal law both provide that Corinthian’s fraudulent actions render her loans unenforceable. She asked the Department to hold the hearing on her objections to which she was entitled.

After the Department of Education overruled her objection, citing the fact that her file included a signed loan contract, and ordered the garnishment to go forward, Sarah filed a lawsuit against the Department in March.  Represented by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, she argued that the Department did not consider the arguments or evidence she presented before rejecting her claim. As the Court noted, her application was supported by 254 pages of exhibits, which included a sworn statement from Sarah as well as records from the Attorney General of California regarding documented misconduct on the part of Everest and its parent company.  The Department also did not provide Sarah with the requested hearing before issuing a summary denial.

In response to the lawsuit, the Department filed a motion asking that the Court refrain from examining the case altogether.  The Court ruled that this request was not based on a “substantial or legitimate concern” but rather was “both frivolous and in bad faith,” and “appears to be an attempt to evade judicial review so that it can retain the ability to garnish Plaintiff’s wages without a conclusive ruling as to the enforceability of her loans.”  Under the ruling, the Department now has ninety days to provide Sarah with a conclusive ruling on her application for loan relief.  Responding to the ruling, Sarah said, “I’m fighting for myself, but also for so many others who were defrauded by for-profit schools.  I hope this case will put pressure on the Department to do the right thing.”

This ruling comes amidst growing concern that the Department of Education is refusing to take actions required by law and its own regulations designed to wipe out student loan debts that are the product of fraud and illegal activity by predatory schools.  Tens of thousands of applications for relief based on the fraud of Corinthian and other for-profit schools have been pending with the Department for months and even years.  “Today’s ruling confirms that student loan borrowers have rights that exist independently of political winds and caprices.  It is inexcusable to delay and thereby deny Sarah and other borrowers in similar positions their contractual and statutory rights,” said Toby Merrill, director of the Project on Predatory Student Lending and one of the lawyers representing Sarah.

Additional Information

Ms. Dieffenbacher is also represented by Alec Harris, Eileen Connor, and Deanne Loonin of the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, as well as Robyn Smith of the Legal Aid Foundation of Los Angeles.

Click here for a copy of the Court’s Order.

Click here for the Project’s press release about the Order.

Press Coverage: Little for Students in ‘Historic’ Settlement of Education Management Case, Chronicle of Higher Education

The Chronicle of Higher Education

November 17, 2015

Little for Students in ‘Historic’ Settlement of Education Management Case

by Goldie Blumenstyk

In exchange for having broken laws, “the company agrees not to break the law going forward? None of this sounds like remedy to me,” said Toby Merrill, director of the Project on Predatory Student Lending, at Harvard Law School. “The company has taken billions of federal funding and distributed that to its executives and shareholders,” but students will see very little of it, Ms. Merrill said.

Read the full article here.

Project on Predatory Student Lending Attorney Toby Merrill Quoted in Washington Post on Corinthian Student Debt

Last week, one of the country’s biggest career college chains completed its collapse…

But allegations that the company lied about the success of its programs and trapped students in predatory loans ultimately led to its downfall. Now 16,000 students are left without degrees for programs that many took on debt to complete. Hundreds of others are fighting for the government to forgive debt they are struggling to repay…

“It is supremely unfair for the government to hold students feet to the fire on loans that were made to finance what the government should have known were valueless products,” said Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School.

Danielle Douglas-Gabriel, This for-profit college failed, but its students are left with the wreckage (Washington Post, May 1, 2015)

Project on Predatory Student Lending Releases Poster Explaining Rights and Options of Students Who Attended Closed Everest Schools

Corinthian Poster FINAL.webLSC’s Project on Predatory Student Lending, along with the National Consumer Law Center’s Student Loan Borrower Assistance Project, released a poster showing rights and options of students at the two Massachusetts Everest schools, as well as other Corinthian-owned schools that closed or are in the process of closing.

For-Profit Corinthian Colleges agreed to shut down operations and sell many of its campuses. Prior to that agreement, the Massachusetts Attorney General sued the schools for taking advantage of students with high-pressure and deceptive recruiting, and misleading students about the value of the schools’ services and career preparation and opportunities in order to boost profits at students’ expense.

The shut-down agreement is complicated, and it continues to be difficult for Everest students who struggle with large debts and few employment prospects to figure out their best options. The poster displays options for students at the schools that have closed or will close.  The options for students at schools that continue to operate, either under Corinthian’s ownership or under other ownership, are more limited.

A downloadable pdf of the poster is available here.

LSC’s Project on Predatory Student Lending Featured on German Public Television

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The Project on Predatory Student Lending was recently featured on Welstpiegel (“World Mirror”), the Sunday evening newsmagazine of ARD Television, the largest national public broadcaster in Germany.  The segment (video) features the Project’s clinical students holding a meeting at LSC, as well as an interview with Toby Merrill, the Project’s director. The segment begins with footage recorded outside of LSC’s building at 2:14. A transcript of the story is also available (in German).

Project on Predatory Student Lending Student Saves Client Over $40,000

The Project on Predatory Student Lending recently helped save a client over $44,000.  A problem in his federal student loan consolidation left him with several defaulted loans.  He came to the clinic because he was struggling to repay his loans, and because he did not understand why he still had defaulted loans after his consolidation.

His student attorney, Alison Sher, reviewed the client’s loan records and discovered errors in his loan consolidation process. The client had consolidated his loans in an effort to get them out of default and begin repaying them.  When his loans were supposedly consolidated, several of his loans were improperly excluded from the consolidation.  Two problems arose with the loans that were “left out” of the consolidation.  First, these loans remained in default, leaving the client at risk of the extraordinary collection powers of the federal government. For example, the federal government may seize borrowers’ earned income tax credits and garnish their wages without seeking a judgment in court.  The second problem was that the outstanding balance for these unconsolidated loans was included twice in the client’s outstanding loan totals.

Alison researched, wrote, and submitted a statement explaining these problems to the federal student loan ombudsman, who helps borrowers fix problems that their servicers cannot or will not correct.  As a result, the ombudsman removed over $24,000 in interest from the account, and also removed the erroneous defaulted loans and the interest that had accrued on those loans, amounting to more than $20,000 of additional relief.

Alison also addressed the client’s concerns by ensuring that he understood what steps we took on his behalf and his reduced outstanding balance. She also made sure that the client enrolled in an income–driven repayment plan, so that his payments would be affordable and his loans would not go into default in the future.

Press Coverage: Attorney Toby Merrill Quoted in Wall Street Journal on College Loans

The Wall Street Journal

September 12, 2014

Parents Poised to Gain Easier Access to College Loans

by Josh Mitchell

The Obama administration is moving to ease access to student loans for parents with damaged credit, a policy reversal that could saddle poor families with piles of debt but also boost college enrollment…Credit counselors say they have seen a rise in borrowers who took out large sums despite being on limited incomes. “This debt will remain a huge problem for the rest of their lives,” said Toby Merrill, head of the Project on Predatory Student Lending at Harvard University’s Legal Services Center.

Read the full article. (WSJ subscription required)

WGBH: For-Profit Colleges’ Methods Under Fire


Massachusetts is joining a growing number of states that want to better regulate for-profit colleges like DeVry, the University of Phoenix, and the Brookline-based Art Institute of New England to prevent aggressive recruiting of people who can’t afford to spend upwards of $40,000 a year on tuition and fees. The attorney general’s office is taking testimony this week on new rules that would strengthen oversight of colleges that don’t have tax-exempt status and rely on tuition and stock market investors. Guests:

Toby Merrill represents low-income student loan borrowers. She testified on Tuesday before the attorney general’s office.

Commonwealth Magazine: A check on bad student loan debt

Last year, federal education officials did something they almost never do: They wrote off more than $3 million in student loan debt belonging to nearly 500 students. Short of dying or paying them off, students almost never shed their college debt, even through bankruptcy. Yet the 500 students managed to convince the federal government that their loan providers had been duped into giving them the money illegally as part of a scheme by some colleges to take advantage of the federal government’s guaranteed loan program. … Toby Merrill, an attorney at the Legal Services Center of Harvard Law School who deals with predatory lending issues for low-income people, says the majority of clients she deals with on bad student loans fall under the category of not qualifying for loans because of a lack of a high school diploma. But even then, she says, a student has to jump through hoops to show they were approved to enter their school without the proper credentials.
“Very few people have all their loan documents,” says Merrill. “The burden is not just high, it’s wrongly placed. The department is skeptical of such applications and requires volumes of documentation. Your say-so as a student is not enough.”