Judge Rebukes Department of Education For Second Time, Ordering It To Stop Collecting on Corinthian Student Loans | Press Release

June 20, 2018

Rejects Department’s Position That It Would Only Stop Collecting On Named Plaintiffs And Orders It To Stop Collecting From Tens Of Thousands Of Students;

Department of Education Urged to Cancel the Debts of Corinthian Borrowers

SAN FRANCISCO – A federal judge today, for the second time in just a few weeks, 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 an illegal rule to reduce relief to borrowers by 80 percent.

This order is part of a preliminary injunction in the case of Calvillo Manriquez v. DeVos and clarifies the groundbreaking May 26 decision by the judge to stop the Department of Education from applying its illegal “average earnings rule” to cheated former students of Corinthian Colleges, and preventing the Department from further collecting on the plaintiffs’ loans. The ruling enjoined the Department of Education from using its partial relief scheme, which it had been applying to partially deny thousands of borrowers’ applications for loan relief, because that scheme clearly violates the Privacy Act and causes severe and irreparable injury to borrowers. The court found that the Department had violated federal law by inappropriately using information from the Social Security Administration to partially deny Corinthian borrowers’ applications for loan discharge.

In response to that ruling, the Department refused to stop collecting from the thousands of borrowers hurt by its illegal actions and whose applications for relief it had adjudicated under its illegal rule, and only stopped collecting on the loans of the four named plaintiffs who represent the class in the case. In other words, the Department continued to collect on thousands of Corinthian students’ loans that only went back into re-payment because of the Department’s illegal conduct. Today’s order once again rebukes the Department, rejecting its unreasonable and narrow interpretation of the May 26 ruling and clarifying that the order to stop collecting means that the Department must stop collecting loans from all individuals whose loans are tainted by Corinthian’s fraud. Critically, the Judge has also put the Department on a short leash, saying that the ban on collections stays in place until the Department presents and the court approves a new procedure. This confirms the importance of this injunction, by which borrowers ripped off by the Corinthian Colleges chain have finally been able to pause the collections on these unlawful debts.

“The Department of Education has now been rebuked in court not once, but twice for violating the rights of students it should be serving,” Project on Predatory Student Lending Director Toby Merrill said. “Corinthian ripped off hundreds of thousands of students and the Department of Education is making it worse by collecting their illegal debts, prolonging their suffering. The Department has the power and the obligation to do the right thing and immediately cancel the debt of cheated Corinthian borrowers, but if they continue to refuse to do it on their own, we will fight them in court until they come around.”

The Department recently informed the Court that it has not decided whether it will attempt to further delay the full cancelation of Plaintiffs’ debt by pursuing an immediate appeal. 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.  Regardless, the case will now move forward to determine whether Plaintiffs can pursue the matter as a class action. Plaintiffs have already filed a motion with the court seeking class treatment, and the Department must respond  by July 31, 2018. A hearing on that motion will occur in San Francisco on September 17, 2018.

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 its debts were discharged, but the students it cheated were left thousands of dollars in debt for an education they never received.

In March, the Department notified some former 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 must repay 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. For more information about the case and the  preliminary injunction, click here.

The borrowers are represented by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Housing and Economic Rights Advocates (HERA).

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.