Update | Judge Declares Department of Education’s Seizure of Corinthian Colleges Borrowers’ Tax Refunds Illegal

October 26, 2018

A federal judge ruled this week that the Department of Education illegally took the tax refunds of two former Corinthian College students to pay their student loans, without addressing the assertion that these loans are fraudulent and unenforceable. Now, the Department may not take their tax refunds unless and until it makes a reasoned decision about the assertions of fraud.

It is another stunning rebuke for the Department and its illegal behavior favoring predatory for-profit colleges and disregarding the rights of students. Even more stunning: that the Department of Education is using coercive collection methods like tax refund offset to take money from former students of Corinthian Colleges.

The decision came last night in the case of Williams v. DeVos, originally filed as Williams v. King. The plaintiffs, Darnell Williams and Yessenia Taveras, are both former students of Everest Institute in Massachusetts, a campus of the now-defunct for-profit Corinthian Colleges, Inc. They sued in September 2016 to challenge the Department of Education’s determination that their defaulted federal student loans are legally enforceable, which determination led the government to seize their tax refunds.

The case was brought on behalf of students by the Project on Predatory Student Lending. The Massachusetts Attorney General’s office filed a brief in support of the borrowers in this case.

After finding that the Department’s certification of the plaintiffs’ debts for offset was arbitrary and capricious, the court:
•Withdrew the Department’s authority to seize these borrowers’ tax refunds;
•Found that the application submitted by the Massachusetts Attorney General on behalf of all Corinthian borrowers in Massachusetts is a borrower defense application (contrary to the Department’s argument), and the Department must consider it (also contrary to the Department’s argument).
•Ruled that the government may not take the tax refund of Massachusetts Everest borrowers who have outstanding borrower defense applications, including the borrower defense application that the Attorney General submitted on behalf of all Massachusetts Everest borrowers

“The Department of Education acts more like a debt collector than an agency that serves students,” said Toby Merrill, Director of the Project on Predatory Student Lending. “The government theft of anti-poverty benefits like earned income tax credits is unconscionable and, once again, students have stood up to the Department and stopped this illegal behavior. This victory would not have been possible without Attorney General Healey’s tireless advocacy for students scammed by Corinthian and other for-profit colleges.”

“After years of illegal delay by the Trump Administration, a federal judge has ordered the U.S. Department of Education to consider my office’s application on behalf of thousands of Massachusetts students,” said Massachusetts Attorney General Maura Healey. “It is time for Secretary Betsy DeVos to stop protecting predatory schools like Corinthian Colleges and follow the law. Thank you to the Project on Predatory Student Lending for continuing to fight on behalf of our students.”

The Project continues to urge the Department to cancel all Corinthian loans based on the company’s well-known and long-established predatory and illegal conduct. When schools procure student loans by illegal conduct, those loans are not enforceable.

“The Department of Education has the power and the obligation to do the right thing and immediately cancel the debt of all Corinthian borrowers, all of whom were cheated on the government’s watch,” Merrill said. “But if they continue to refuse to do it on their own, we will continue fight them in court until they do.”

Case Background

Mr. Williams attended a massage therapy program at Everest Institute in Chelsea, Massachusetts. Mrs. Taveras attended a medical assistant program there. In 2015, Everest and its parent corporation, Corinthian, shut down amidst extensive state and federal investigations and lawsuits about Corinthian’s extensive wrongdoing. In 2016, the Department of Education illegally seized Mr. Williams’s and Mrs. Taveras’s federal tax refunds to pay their federal student loans from Everest Institute.

Mr. Williams and Mrs. Taveras are not alone: the Department is seizing tax refunds to collect from 60 to 80,000 former Corinthian students, not to mention hundreds of thousands of borrowers who attended other predatory schools. In fact, the Department is seizing tax refunds and other payments to collect the student loans of over 30,000 former Corinthian students who have already been found eligible to have their loans discharged.

Instead of discharging these loans, or at the very least halting coercive collection tactics like tax refund offset and administrative wage garnishment, the government has continued to seize these borrowers’ money while insisting that each cheated borrower submit an individual application for discharge.

The Department currently refuses to process borrower defense applications of any individuals who have applied: more than 150,000 applications currently sit with the Department of Education, nearly all from former for-profit college students. Many of the applications have been sitting for more than two years.

Moreover, the Department of Education recently moved to reduce the amount of relief to the Corinthian borrowers who had already been determined eligible to have their loans discharged. Earlier this year, in another of the Project’s cases representing former Corinthian students, a judge struck down the Department’s illegal “partial denial” rule and ordered the Department to immediately cease the collection of debt from Corinthian students who apply to have their loans cancelled. That case was recently certified as a class action on behalf of students who enrolled at certain Corinthian-owned programs during specified dates.