DeVos Held In Contempt For Illegal Collection of Student Debts | Press Release

October 24, 2019

DeVos Illegally Collected on Loans Of Thousands Of Students In Direct Violation Of Court Order Won By Students, Project on Predatory Student Lending

 

BOSTON – U.S. Secretary of Education Betsy DeVos has been held in civil contempt and sanctioned for her illegal collection of student loan debts, a federal judge ruled today.

The ruling was sought by students and the Project on Predatory Student Lending after the Department admitted it had illegally continued to collect the loans of thousands of former for-profit college students in direct violation of a court order.

The finding is part of a class action lawsuit on behalf Corinthian College students by the Project and HERA. In the ruling, the judge found that the Department of Education failed to show any reason that it should not be held in contempt, sanctioned the Department with a $100,000 fine, and ordered monthly reporting.

“Taking this rare and powerful action to hold the Secretary of Education in contempt of court shows the extreme harm Betsy DeVos’ actions have caused students defrauded by for-profit colleges,” said Project on Predatory Student Lending Director Toby Merrill. “Secretary DeVos has repeatedly and brazenly violated the law to collect for-profit college students’ debts and deny their rights, and today she has been held accountable. Thousands of students illegally had their tax refunds seized and wages garnished, and the Department still can’t identify all of the affected students nor refunded the money. The judge is sending a loud and clear message: students have rights under the law and DeVos’ illegal and reckless violation of their rights will not be tolerated.”

Today’s ruling follows a case management conference held on October 7, 2019, at which the judge addressed a September 18 filing by Secretary DeVos that revealed she had continued to collect on the debt of thousands of former for-profit college students – a direct violation of the court’s injunction ordering the Department not to collect on those debts. According to the Department’s filing:

  • The Department demanded incorrect loan payment from 16,034 students
  • Of those students, 3,289 student borrowers made one or more loan payments because of these demands, which they were not actually supposed to pay
  • The Department has still not confirmed that 1,147 students’ loans are in the correct status, leaving those students in limbo
  • The Department has harmed the credit of 847 non-defaulted students
  • The Department subjected 1,808 students to involuntary debt collections (garnished their wages or taken their tax refunds or benefits)

The Project on Predatory Student Lending responded in a case management statement filed in advance of the hearing, calling out Secretary DeVos and the Department for their violation of a court order and the illegal collection on fraudulent student loans from Corinthian Colleges. The Project alerted the judge that DeVos and the Department are in contempt of the Court’s prior injunction ruling and requested the opportunity to be heard on the appropriate sanctions.

Case Background: Calvillo Manriquez v. DeVos

Under the Department of Education’s watch, Corinthian took in billions of dollars 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 to stay in business. Corinthian filed for bankruptcy and avoided its debts, but the students it cheated were left thousands of dollars in debt for an education they never received.

Between 2015 and 2016, the Department informed certain former students that they were eligible for a full loan discharge on account of Corinthian’s misconduct. However, in March 2018, the Department notified these students that 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, they actually had to repay a majority their loans. In coming up with this murky and convoluted calculation, the Department secretly and illegally gathered information about borrowers’ earnings from the Social Security Administration. Perversely, the Department obtained the data from SSA pursuant to an information sharing agreement entered into for the purpose of protecting the public from predatory institutions like Corinthian by publishing “gainful employment” metrics.

In May 2018 and again in June 2018, a federal judge rebuked the Department of Education for its wrongful and illegal continued attempts to collect on the debt of students who were defrauded by the for profit Corinthian Colleges, ruling that the Department must stop collecting on the loans of tens of thousands of Corinthian students in light of the Department’s use of this illegal rule to reduce relief to borrowers by 80 percent. The preliminary injunction and subsequent order required the Department of Education to stop applying its illegal “average earnings rule” to cheated former students of Corinthian Colleges, and prevented the Department from further collecting on the plaintiffs’ loans despite the Department’s ongoing and illegal attempts to take money from borrowers, often times through coercive means such seizing earned income tax credits and through wage garnishment.  For more information about the case and the preliminary injunction, click here.

In September 2019, U.S. Department of Education and DeVos admitted in a court filing that it is violating this federal court order by continuing to illegally collect on the student loan debt of thousands of former Corinthian students. Since the injunction was issued, the Department has demanded payment from 16,000 borrowers. Of those who were subject to illegal payment demands by the Department of Education, over 3,000 made unnecessary payments on their loans. The Department also involuntarily took 1,808 borrowers’ much-needed tax refunds and wages. Many others suffered from inaccurate negative credit reporting. The Department’s violations are the exact behavior the preliminary injunction was intended to prevent.

About the Project on Predatory Student Lending

Established in 2012, the Project on Predatory Student Lending represents former students of predatory for-profit colleges. Its mission is to litigate to make it legally and financially impossible for federally-funded predatory schools to cheat students.

The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.

 

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