Vara v. DeVos: The persistence of students and the power of the law | Blog

July 10, 2020

On June 26, in a major victory for students in our case, Vara v. DeVos, a federal court ruled that the Department of Education has to cancel the loans of all 7,200 former Corinthian Colleges (Everest) students in Massachusetts. It was the first time a federal court has ordered a borrower defense discharge of federal student loans.

This is a massive win for students – one that spanned over 5 years, multiple administrations, two Massachusetts Attorneys General, multiple lawsuits, and dozens of legal filings. It is the result of student borrowers who refuse to give up on their legal rights, and an Education Department that stubbornly refuses to acknowledge them, no matter what the law says.

 

How We Got Here

 

This fight started when, after years of investigation into the operations of for-profit Corinthian Colleges, which operated two Everest Institute campuses in Massachusetts, the Massachusetts Attorney General’s office in 2014 sued Corinthian in state court for pervasive fraud and misconduct. In 2015, Attorney General Maura Healey then filed a borrower defense application on behalf of all Massachusetts borrowers who were defrauded by Corinthian. The Department of Education itself had recognized the pervasive fraud at Corinthian Colleges – making some federal student loans from the school legally invalid.

However, the Department ignored the Attorney General’s application and kept collecting on the loans.

In 2016, we filed the case Williams v. King on behalf of two students whose tax refunds were seized to pay for their bogus Everest Institute loans, even though the Massachusetts Attorney General had applied for borrower defense on their behalf. Eventually, after two years of fighting the Department in court, the students won their case in October of 2018. The court ruled that the AG’s application was valid and that the Department had to consider it.

This should have been a win for all borrowers who were covered by the AG’s borrower defense application, but the Department of Education refused to see it that way, and maintained that the ruling applied only to the two borrowers in that case.

Still, students didn’t give up. A year later, as the Department continued to collect, borrowers filed a new lawsuit, Vara v. DeVos. This suit is a class action, on behalf of all 7200 students covered by the AG application—the same 7200 students who attended Everest during the entire time that it operated in Massachusetts—as well as parents who took out Parent PLUS loans on behalf of those students. Massachusetts Attorney General Maura Healey filed her own, related lawsuit. Both lawsuits demanded that the Department recognize Attorney General Healey’s borrower defense application and cancel all of the borrowers’ loans. In June 2020, a judge agreed, ruling in the students’ case that all 7200 class members’ loans should be cancelled.

 

The Legal Implications

 

The Williams decision laid the groundwork for the Vara victory, confirming several important legal points:

  • State Attorneys General can file a borrower defense application on behalf of their constituents, and the Department of Education must adjudicate those applications.
  • It is unlawful for the Department to certify defaulted student loan debts for treasury offset (seizure of tax refunds or benefits) while there is a pending borrower defense application.
  • Although the government has broad powers to collect defaulted federal student loans, it may not use the treasury offset process to seize funds from borrowers when it knows that the defaulted student loan debts are not legally enforceable due to a school’s fraud, or when there is an unanswered question about the debt’s legal enforceability. And as we know, ED was very well aware of Corinthian’s widespread fraud.

The Vara decision confirmed these principles, and added:

  • The Department of Education has to decide this AG claim for all of the people covered because the Department had an established pattern of deciding claims submitted on behalf of groups of people.
  • The Department’s discretion to invoke a “group process” under the 2016 borrower defense regulations did not lift the Department’s obligation to decide this claim from the AG on behalf of all borrowers. The Department didn’t have to use the group process, but it did have to make a decision for each person covered by the application.
  • The Department of Education “constructively denied” the application by not deciding it for five years, and by continuing to collect on people who didn’t apply individually.
  • All covered borrowers are entitled to full relief, including complete debt cancellation. This is because they are entitled to complete relief under state law, and the Department had an established pattern of using state law to decide the amount of relief.

 

What this Ruling Means for Students

 

The 7,200 former Corinthian students who attended Everest in Massachusetts will get loan relief, finally.

And this establishes legal precedent for courts to order large-scale borrower defense loan discharge for defrauded borrowers whose rights have been ignored by the Department of Education.

This is yet another reason for the Department of Education to cancel all Corinthian debts immediately for the tens of thousands of borrowers across the country who have been waiting and fighting for years. And Corinthian isn’t the only company about which the Department has “overwhelming” evidence of fraud and abuse. Students of ITT, Art Institutes, and so many more deserve relief, too.

It has been a long road to the debt cancellation these students are owed. These two court victories now lay out a clear path for other students and state Attorneys General to reach the same destination.

This outcome is a credit to the persistence of students seeking justice and the power of the law.