Update | Injunction Against Department of Education: What it Means and What Happens Next

June 20, 2018

UPDATED – On May 25, 2018, a federal court in San Francisco granted former Corinthian borrowers’ motion for a preliminary injunction in Calvillo Manriquez v. DeVosordering the Department of Education to stop using its “average rulings rule” immediately, and to stop collecting the loans of certain Corinthian borrowers. The judge found that the Department of Education had violated federal law by secretly and illegally using data from the Social Security Administration to partially deny individual borrower defense applications for thousands of Corinthian borrowers. On June 19, 2018, the Court clarified that that the order stops all collection efforts on all Direct Loans that are infected with Corinthian’s fraud. The Order will last until the Department proposes, and the Court approves, a new policy for loan relief.

The judge issued this Order after finding that the Department of Education had violated federal law by secretly and illegally using data from the Social Security Administration to partially deny individual borrower defense applications for thousands of Corinthian borrowers. The court also recognized the extraordinary harm that Corinthian borrowers are suffering at the hands of the government.

This preliminary injunction is a landmark decision, and it represents significant progress in the long fight to force the Department to recognize that it cannot continue to collect on predatory and fraudulent student loan debts. It also recognizes the extraordinarily lawlessness of the Department of Education, and finds that the Corinthian borrowers are likely to ultimately win their case that the Department of Education violated their rights in partially denying their claims. We hope that the Department will ultimately abandon its ill-advised policy of partial relief and return to the prior established policy that recognized that Corinthian loans are not valid obligations.

Read the decision here (pdf) and the clarified order here. Read coverage of this case and this ruling here.

What is this case about?

Calvillo Manriquez v. DeVos is a class action filed in December 2017 challenging the Department of Education’s unexplained, irrational, and abrupt change of course with respected to former students of collapsed for-profit Corinthian Colleges. Under the Department of Education’s watch, Corinthian took in billions in taxpayer money and used boiler-room-style high-pressure tactics and racially-targeted advertising to build its business, all while producing outcomes for students so terrible that it had to lie about them. Corinthian filed bankruptcy and its debts disappeared, but the students it cheated were left thousands of dollars in debt for an education they never received.

After previously acknowledging that Corinthian’s widespread wrongdoing entitled at least some former students to complete cancellation of their federal student loans, the Department stopped granting any cancellation at all, and then used data from the Social Security Administration and announced that it would cancel only a portion of these bogus debts.

What is the average earnings rule?

In March, years after deciding that these Corinthian borrowers deserve complete loan cancellation, the Department started partially denying loan cancellation to former students because their “average earnings” were not less than half of the “average earnings” of some unspecified group of students who went to a different, non-Corinthian school. In coming up with its murky and convoluted calculation, the Department secretly and illegally gathered information about borrowers’ earnings from the Social Security Administration (SSA). Perversely, the Department got this information from SSA by using an information sharing agreement intended to protect the public from predatory companies like Corinthian by measuring and publishing “gainful employment” metrics.

To compare the earnings from Corinthian programs to “comparable” programs that had passing gainful employment scores, the Department grouped 61,717 former students who applied to have their loans cancelled by 79 Corinthian programs they attended. The Department submitted identifying information (names, dates of birth, Social Security Numbers) from their loan cancellation applications to the Social Security Administration to obtain the data regarding the earnings of those students. In return, the Social Security Administration provided the Department with the “mean and median incomes” for each program group, based on data from 2014. The Department compared these mean and median incomes to unidentified “comparable” programs that had passing gainful employment scores.

Borrowers in programs for which the average Corinthian applicants’ earnings were more than half of the “comparable” programs were denied complete loan relief. Between 10% and 50% of their loans were cancelled. Because their applications for loan cancellation were partially denied, the Department told them, they must now start repaying their bogus loans.

What is the Privacy Act?

The Privacy Act is a federal law from 1974 intended to protect people when the government collects and uses their information. It prohibits one government agency from sharing individuals’ information with other federal agencies without meeting procedural safeguards that the Department of Education undisputedly ignored. Moreover, federal agencies may not use data matching programs of the type the Department of Education undertook to make decisions concerning the “rights, benefits or privileges of specific individuals.” Here, the information the Department of Education disclosed to the Social Security Administration was used to make a determination about a specific individual – how much of the borrower’s loan the Department would forgive.

How does the Department’s average earnings rule violate the Privacy Act?

The court found that the Department had clearly violated the Privacy Act by gathering applicants’ information from the Social Security Administration and using it to partially deny Corinthian borrowers’ requests for loan discharge. The decision is a significant blow to the Department’s attempts to backtrack on the complete loan cancellation due to Corinthian borrowers.

Who are the plaintiffs in this case?

The proposed class in this case is Corinthian borrowers who are covered by Department of Education findings that Corinthian violated the law by lying to them about the chain’s job placement rates. As the Department already decided, because the company lied to get them to enroll, their loans are invalid and unenforceable. There are several named plaintiffs representing the class. Read about them here.

What is a preliminary injunction?

A preliminary injunction is a tool to stop an illegal action or condition while the lawsuit is litigated, instead of waiting for the end of the lawsuit to get relief. The plaintiffs had to show that they are likely to succeed on the merits of their claim, that they would suffer irreparable harm if the court did not stop the Department, and that an injunction is in the public interest.

The court rejected the Department’s arguments that the plaintiffs were not suffering from the Department’s actions, finding them “meaningless given the dire financial circumstances that Plaintiffs describe. Given their financial situations, any additional dollar they are required to repay takes away from basic need for food and shelter.”

The court also rejected the Department’s arguments that “the relief Plaintiffs seek will divert resources from other educational programs, and that there is a strong public interest in saving funds.” To the contrary, “there is a strong public interest in ensuring that agencies comply with the law in enacting rules and regulations. ” Moreover, in a clear rebuke, the court responded to the Department, “Saving money does not justify a violation of the law.”

What is enjoined, and what happens next?

The court ordered the Department of Education to stop all use of the Average Earnings Rule immediately. The court also ordered immediate cessation of all attempts to collect Plaintiffs’ debt.

The Court clarified that this order is not limited to the Named Plaintiffs, but applies to all Direct Loans that are infected by Corinthian’s fraud. The Court put the Department on a short leash, banning these collections until the Department presents and the Court approves a new procedure.

The Department has not indicated whether it will immediately appeal this decision. If the Department does appeal, Plaintiffs are confident that the Ninth Circuit will also find the Department’s unlawful data experiment illogical, and its continued attempts to harm Corinthian borrowers egregious.  The case will also now move forward to determine whether Plaintiffs can pursue the matter as a class action. A hearing on that motion will occur in San Francisco on September 17, 2018.