In Groundbreaking Decision, Judge Halts Collection of For-Profit College Student Debts | Press Release

May 26, 2018

Department’s Clear Violation of Privacy Act Irreparably Harms Students and Renders “Average Earnings Rule” Illegal and Unenforceable

SAN FRANCISCO – In a landmark decision for defrauded students of Corinthian Colleges, a U.S. District judge late Friday stopped the Department of Education from applying its “average earnings rule” to cheated former students of Corinthian Colleges, and prevented the Department from collecting on the plaintiffs’ loans. The ruling enjoins the Department of Education from using its partial relief scheme, which it has 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 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).  In light of this decision, the Project on Predatory Student Lending calls on the Department immediately to return to its prior practice of discharging in full the loans of Corinthian borrowers.

The preliminary injunction was granted late Friday by the U.S. District Court in San Francisco in the case of Calvillo Manriquez v. DeVos. A motion for a preliminary injunction was filed as part of the class action lawsuit by Corinthian borrowers seeking to stop the Department from denying the loan cancellation to which the borrowers are legally entitled. It challenged the Department’s unexplained, irrational, and abrupt change of course: after previously acknowledging that Corinthian’s widespread fraud entitled certain former students to complete cancellation of their federal student loans, the Department instead illegally drew data from the Social Security Administration and announced that it would cancel only a portion of these bogus debts. The class action was filed in December, and the preliminary injunction motion was filed in March and argued on April 30.

“This is an important ruling for former Corinthian Colleges students. It clearly states that the Department of Education must immediately stop using its lawless partial denial rule,” Project on Predatory Student Lending Director Toby Merrill said. “The notion that students got anything other than negative value from Corinthian has been roundly disproved by student experience and the judgment of employers and the legitimate higher education sector.  Based on this ruling, the Department should immediately return to its practice of fully discharging the loans of Corinthian borrowers.”

“This ‘average earnings rule’ is not only a theft of data, but more importantly, it is a fact-free attempt by the Department of Education to double cross borrowers who were scammed by Corinthian and then waited months or even years for the relief that the Department promised them,” said Noah Zinner, an attorney at Housing and Economic Rights Advocates who is also representing the plaintiffs.

The court found that the Department had clearly violated the Privacy Act by gathering applicants’ information from the Social Security Administration and using it to partially deny Corinthian borrowers’ requests for loan discharge. The decision is a significant blow to the Department’s attempts to backtrack on the complete loan cancellation due to Corinthian borrowers.

Specifically, the Court found:

  • It is undisputed that, before January 20, 2017, the Department provided full loan cancellation for Corinthian borrowers who submitted a simple attestation form.
  • Under Secretary DeVos, the Department developed an “Average Earnings Rule” to deny Corinthian students complete loan cancellation, based on a comparison of earnings data.  In general, the Department analyzed the difference between the earnings of Corinthian borrowers and the earnings of students from schools with passing gainful employment scores. If the earning from the passing school was higher than the earning of the Corinthian students, this difference represented the educational value or lack of educational value of the Corinthian program.
  • More specifically, to compare the earnings from Corinthian schools and comparable schools with a passing gainful employment score, the Department identified 79 Corinthian programs and submitted information identifying the names of 61,717 former Corinthian students to the Social Security Administration to obtain the data regarding the earning capacities of those students. Specifically, the Department sent information with dates of birth and Social Security numbers of the applicants who submitted attestation forms for Corinthian programs to claim the borrower defense. In return, the Social Security Administration provided the Department with aggregate data regarding the “mean and median incomes” for each group of students in the Corinthian programs, based on data from 2014. Using the data from the Social Security Administration, the Department compared the earnings under four different formulas, using the mean and median earnings for Corinthian students with the mean and median earnings of students at comparable programs with passing gainful employment scores.

This process violates the Privacy Act:

  • The Privacy Act of 1974, 5 U.S.C. § 552a, “regulate[s] the collection, maintenance, use, and dissemination of information by [governmental] agencies.” Doe v. Chao, 540 U.S. 614, 618 (2004). The purpose is to avoid “substantial harm, embarrassment, inconvenience, or unfairness to any individual on whom information is maintained.” 5 U.S.C. § 552a(e)(10).
  • The Privacy Act provides: “No agency shall disclose any record which is contained in a system of records . . . to another agency.” 5 U.S.C. § 552a(b).
  • When the Department disclosed to the Social Security Administration information about the applicants’ Social Security numbers and dates of birth from the Department’s files, that disclosure violated the Privacy Act.
  • The Department’s sharing of information is a matching program under the Privacy Act. The Department shared information with the Social Security Administration for the purpose of recouping payments or delinquent debts – collection of student loans. Matching programs must satisfy several procedural requirements, which the Department does not dispute it failed to do. Instead, the Secretary argues that agencies generally may share aggregate statistical data, which is what the agencies did here. Even if the Secretary is correct that the Department’s sharing of information with the Social Security Administration was not a matching program and even if the Secretary is correct that agencies may share aggregate statistical data, the Privacy Act nonetheless bars the disclosure. The express terms of the Privacy Act forbid use of aggregate statistical data to make decisions concerning the “rights, benefits or privileges of specific individuals.” Here, the information the Department disclosed to the Social Security Administration was used to make a determination about a specific individual – how much of the borrower’s loan that the Department would forgive.

The Average Earnings Rule causes severe harm to the Plaintiffs:

  • The illegal rule causes emotional distress and loss of opportunity that cannot be compensated for.
  •  The illegal rule causes Corinthian borrowers severe economic harm because it threatens their ability to pay for basic life necessities. The Department’s arguments to the contrary are “meaningless,” according to the Court, “given the dire financial circumstances that Plaintiffs describe. Given their financial situations, any additional dollar they are required to repay takes away from basic need for food and shelter. In economic terms, the marginal utility of each dollar is extremely high to the Plaintiffs. Under these circumstances, the Court finds that Plaintiffs have shown irreparable harm because the economic harm they are suffering affects their ability to pay for life’s most basic necessities.”
  • An injunction of the illegal rule serves the public’s interest, according to the Court: “There is a strong public interest in ensuring that agencies comply with the law in enacting rules and regulations, and here, preventing the use of data in violation of the Privacy Act is a compelling interest.”
  • The Secretary’s counterarguments were not convincing to the Court: “The Secretary argues that the relief Plaintiffs seek will divert resources from other educational programs, and that there is a strong public interest in saving funds. Saving money does not justify a violation of the law – the Privacy Act.”

Terms of the Injunction:

  • The Department must immediately stop all use of the Average Earnings Rule.
  • The Court also ordered immediate cessation of all attempts to collect Plaintiffs’ debt.
  • The Court is considering whether to order the Department to award full and complete loan cancellation to Corinthian students. To that end, the Court is considering whether to order the Department to reveal certain internal documents.
  • A hearing on further injunctive relief is set for June 4 at 2:30 in San Francisco.

CASE BACKGROUND

Under the Department’s watch, Corinthian took in billions in taxpayer money and used boiler-room style pressure tactics and racially-targeted advertising to build its business, all while producing outcomes for students so terrible that it had to cook its books in order stay in business. Corinthian filed bankruptcy and its debts disappeared, but the students it cheated were left thousands in debt for an education they never received.

In March, after promising full loan cancellation, the Department notified certain 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 at large from predatory institutions like Corinthian by publishing “gainful employment” metrics.

The class action suit challenged this action.

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 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.

About the Project on Predatory Student Lending

Established in 2012, the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School represents former students of the predatory for-profit college industry. Its mission is to litigate to make it legally and financially impossible for the for-profit college industry to cheat students, and to relieve borrowers from fraudulent student loan debt.

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.