Defrauded Student Borrowers Tell Court: Dept. is Acting in Bad Faith, Breaching Settlement in Denials of Borrower Defense Claims | Press Release

September 18, 2020

Students push for final approval of the settlement and ask the judge to enforce the terms of the settlement and issue reasoned decisions for borrowers


BOSTON – Last night, student borrowers filed a motion in federal court asking for final approval of a settlement that forces the Department of Education to process all pending borrower defense claims, while also asking the judge to enforce the terms of the settlement. The borrowers argue that the Department has already breached the settlement agreement, finalized in April, by issuing cursory, blanket denials of nearly all of the borrower defense claims it has decided.


The borrowers and the Department filed the proposed settlement in the case of Sweet v. DeVos on April 10, 2020, and the court granted preliminary approval on May 22. The settlement agreement commits the Department to an 18-month timeline to issue a final decision on the nearly 170,000 outstanding borrower defense claims, or else be required to cancel a portion of the borrower’s student loans. Nearly all borrower defense applicants attended predatory for-profit colleges.


The settlement is fair, and that’s why borrowers are asking the court to finalize it. However, the Department of Education has admitted that, since April, it has denied 94% of borrower defense claims using notices that do not betray its reasons or reasoning. Under the agency’s own regulations, it is required to articulate a “brief statement of the grounds” for its decisions. Instead, it has issued tens of thousands of notices that contain merely vague and conclusory boilerplate statements, like “failure to state a legal claim” and “other.”


By failing to issue adequate notices to borrowers, the Department is failing to perform its obligations under the settlement and the law. Borrowers are asking the court to ensure they get the deal they agreed upon, and are entitled to, under the law.


“The denial notices make it impossible to confirm that the Department is considering borrowers’ claims based on the merits. This prevents borrowers from understanding their decision and from seeking review or appealing the denial effectively,” said Eileen Connor, Legal Director at the Project on Predatory Student Lending. “The settlement that students and the Department agreed to was fair and requires the Department to consider each borrower defense application. The Department should be acting in good faith to decide students’ claims based on the law and the evidence. As we have throughout this case, we are just trying to get the Department of Education to follow the law.”


“I was shocked to receive the denial notice, in light of all of the evidence I believe the Department has received through the many borrowers I know who attended Brooks,” said former Brooks student Theresa Sweet in an affidavit filed with the court. “This feels like a blanket denial, without explanation or due consideration.”


The filing follows a hearing on August 31st in which lawyers for the borrowers shared their concerns with the judge about the denials. The judge agreed that the notices are hard to understand, saying he himself did not understand the notices. He required the Department of Education to file additional information, which showed that 94% percent of the borrower defense claims the Department has processed since reaching the agreement in April have been rejected. Between April 7, 2020—the date the Settlement was executed—and August 24, 2020, the Department had issued approximately 78,400 decision notices. All but 4,400 were denials. The judge also invited the borrowers to file this additional motion to enforce the settlement agreement.


Next up in the case is the “fairness hearing,” when a court hears from class members before deciding whether to give final approval to a class action settlement. The fairness hearing has long been scheduled for October 1, 2020. Today’s motion will likely be heard later in October.


Case Background:

Over the past several decades, millions of students borrowed federal student loans to attend various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, the Art Institutes, Salter College, Brooks Institute of Photography, and more. This industry falsely promises students high-paying jobs, state-of-the-art vocational training, and meaningful careers.


Between 2015 and 2019, over 200,000 former students have asserted their right under federal law to discharge their federal student loans due to their schools’ misconduct. As it was legally obligated to do, the Department of Education started to adjudicate these borrower defenses, approving nearly 28,000 borrower defenses in the six-month period before January 20, 2017.


Then, under Secretary DeVos, the Department of Education refused to adjudicate any borrower defense claims for well over a year, and stopped the processing of borrower defense applications.


The Department of Education’s decision to keep these students in limbo has further destroyed students’ credit and limited their access to federal student aid. For students who have defaulted on their loans, the Department of Education has invoked its extraordinary powers to garnish their wages or seize their tax refunds (for many, their Earned Income Tax Credit).


Named Plaintiffs brought this lawsuit in June 2019. Immediately after filing the lawsuit, the students asked the court to let them represent all other former students whose claims for loan cancellation have stalled, with a motion for class certification. The motion included more than 900 affidavits from students describing the harm that the Department’s inaction has caused – with 96% saying their lives were made worse by attending school. In October 2019, the court certified the class of over 200,000 borrowers with pending claims. Many had been pending for more than four years


This lawsuit builds on other cases that hold the Department of Education accountable to students in court. In Williams v. King, Everest students fought back against the Department of Education stealing their tax refunds, and won. In Calvillo Manriquez v. DeVos, Corinthian students stopped the Department from going back on its decision to discharge their loans completely. And in Bauer v. DeVos, two former Art Institutes students forced the Department to implement the 2016 Borrower Defense rule. In August 2019, Secretary DeVos issued a new borrower defense rule imposing near-impossible standards for loan discharge; in February 2020, the Project challenged the new rule in court.


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 and taxpayers.


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.