In New Ruling, Judge Denies Borrower Defense Settlement Over Department of Education’s “Perfunctory, Alarmingly-Curt Denials” | Press Release

October 20, 2020

Ruling raises possibility of an injunction against the Department’s unreasoned denials and will allow plaintiffs to depose Department officials

 

BOSTON – Late Monday night, a federal court issued a new ruling that will light some fires at the United States Department of Education. The ruling, in the borrower defense case Sweet v. DeVos, shuts down a proposed settlement, raises the possibility of an injunction against the Department’s blanket borrower defense denials, and takes the unusual step of allowing plaintiffs to take depositions of officials from the Department of Education. It ends one contentious chapter in the litigation over the Department of Education’s long-standing refusal to address the mountain of borrower defenses brought on by its long-term funding of predatory for-profit colleges and opens a new chapter in the legal battle.

The ruling follows a fairness hearing on October 1, attended by 500 borrowers via Zoom. Before the hearing, more than 200 students sent in comments and requests to speak and fourteen spoke about the settlement and how the Department of Education has been acting in bad faith by issuing blanket denials without any consideration of their claims. The plaintiffs are represented by the Project on Predatory Student Lending at Harvard’s Legal Services Center along with Housing & Economic Rights Advocates (HERA).

“I went to Sanford Brown in New York City because they promised that I could become a licensed sonographer and I wanted to help people. Only after I signed up for private and federal student loans did I discover that the school had lied. They were not accredited the right way. I couldn’t even sit for the licensing exam! The Department of Education has known about this fraud for years, because the New York Attorney General investigated and got Career Education Corporation to enter into a settlement. But without any explanation, the Department decided that this deception does not matter. The Court is right; this is “Kafkaesque.” I appreciate that student voices are finally being heard and know that, together, we will get the justice we deserve,” said Yvette Colon, a former Sanford Brown student.

In the ruling, Judge Alsup recognized the extraordinary pain and absurdity that so many class members faced, writing:

 “Through the class comment period and at the October 1 hearing, the undersigned has been struck by the scope of the problem here. The consistency and passion with which the nearly one hundred thirty written commenters, three hundred speaking requests, and the fourteen speakers at the fairness hearing have told their stories leads to the conclusion that their voices are not individual, special cases within the class, but representative of the class’s shared trauma. This is not an attorney-driven case. Class members have a genuine interest; they sought opportunity via higher education only to be deceived by for-profit institutions and, at least in some cases, saddled with crushing debt.”

The judge called out the Department for its perfunctory and contradictory actions towards students:

“One hundred sixty thousand student-loan borrowers, defrauded by for-profit schools and saddled with debilitating debt, have asked the Secretary of Education for the relief which Congress has provided. All may not be entitled to relief, but all are entitled to a comprehensible answer. For eighteen months, the Secretary refused, largely on the grounds that such answers required backbreaking effort and, thus, substantial time. Now, the Secretary has begun issuing decisions at breakneck speed. But most are a perfunctory “Insufficient Evidence” — without explanation.”

Adding further:

“It’s no wonder borrowers are confused. The Secretary’s perfunctory denial notice does not explain the evidence reviewed or the law applied. It provides no analysis. And, the borrower’s path forward rings disturbingly Kafkaesque.”

“As the judge so poignantly wrote: this is not an attorney-driven case, this is a case driven by the students themselves,” said Eileen Connor, Legal Director at the Project on Predatory Student Lending. “The class members in this case have suffered harm at every turn, but in this court order they are finally seeing a change in the tides after years of waiting for justice. Students came together to speak up for themselves and show the court the massive scope of the trauma they have endured at the hands of the Department of Education, and the courts are listening.  We look forward to the next stage of litigation in which we depose Department of Education officials to explain their actions under oath.”

The judge asked for an updated discovery to determine what caused the blanket denials and will then expeditiously rule on the merits of the case. The judge will also decide whether the Secretary may continue using the form denials, and threatened an injunction vacating the form denials. Discovery will close on December 24, and the class’s motion for summary judgment is due to the court on January 7, 2021.

 

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, and Brooks Institute of Photography. 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).

Six students 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 almost 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.

The parties reached a settlement in April 2020 and received preliminary approval from the court in May 2020. The settlement agreement commits the Department to an 18-month timeline to issue a final decision on the more than 100,000 outstanding borrower defense claims, or else be required to cancel a portion of the borrowers’ student loans. However, since April, the Department has denied 94% of borrower defense claims without giving real reasons. On September 18, 2020, the students filed a motion asking for final approval of the settlement, while also asking the judge to enforce the terms of the settlement that the parties agreed to, and are entitled to, under the law.

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.

About HERA

Housing and Economic Rights Advocates (HERA) is a California statewide, not-for-profit legal service and advocacy organization dedicated to helping Californians — particularly those most vulnerable — build a safe, sound financial future, free of discrimination and economic abuses, in all aspects of household financial concerns. It provides free legal services, consumer workshops, training for professionals and community organizing support, creates innovative solutions and engages in policy work locally, statewide and nationally.