Betsy DeVos Is Held in Contempt Over Judge’s Order on Loan Collection

• Oct 24, 2019

A federal judge on Thursday fined Education Secretary Betsy DeVos for contempt of court, ruling that she had violated an order to stop collecting on loans owed by students from a now-defunct for-profit chain of colleges.

Magistrate Judge Sallie Kim of the Federal District Court in San Francisco ordered the Education Department to pay a $100,000 fine. The money will go toward various remedies for students who are owed debt relief after President Barack Obama’s Education Department found they were defrauded by the chain, Corinthian Colleges, which collapsed in 2014.

The ruling is a victory for the more than 60,000 students who have been on a financial roller coaster since Corinthian imploded, after state and federal officials found that it lured students through deceptive recruitment practices and falsified job placement rates.

The decision stems from a class-action lawsuit filed in 2017 by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and the group Housing and Economic Rights Advocates, both of which represent former Corinthian students. For more than a year, the students’ lawyers argued that Ms. DeVos had illegally punished thousands of cheated students who were owed relief from the federal government.

Toby Merrill, director of the project, said that the ruling demonstrated “the extreme harm” of Ms. DeVos’s actions. “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,” she said.

In a video statement posted on Twitter, Mark Brown, chief operating officer of the Education Department’s Federal Student Aid office, said that loan servicers had “mistakenly” billed about 16,000 students and parents.

“Although these actions were not done with ill intent, students and parents were affected and we take full responsibility for that,” Mr. Brown said.

He said the department had taken swift action to respond, including refunding nearly all payments that borrowers should not have had to make, returning tax refunds and wages that were seized, and updating credit reports for affected students and parents. He said the department had also formally reprimanded loan servicers that collected debts, and initiated personnel action against Education Department employees who failed in their oversight roles.

In 2015, Arne Duncan, the education secretary at the time, announced that the department would use a provision known as “borrower defense to repayment” to forgive the federal student debts of Corthinian’s students. “You’d have to be made of stone not to feel for these students,” he said. “This is our first major action on this but obviously it won’t be the last.”

But the department moved slowly to establish a formal process for discharging the students’ debts, and by the time Mr. Obama left office, only 12,000 Corinthian students had their ledgers wiped clean. Tens of thousands more awaited relief.

Instead of fully eliminating those students’ debts, however, Ms. DeVos instituted a new system for borrower defense claims that granted little to no debt forgiveness if those students were found to have earned a livable wage. The Project on Predatory Student Lending filed a lawsuit challenging that system.

Last year, Magistrate Judge Kim found the system illegal, ruling that the Education Department had violated borrowers’ privacy by obtaining and misusing their earnings data from the Social Security Administration. She issued an injunction ordering the department to stop using the data and collecting the debts of Corinthian students. The department appealed the decision to the United States Court of Appeals for the Ninth Circuit and is waiting for a ruling.

But the department, through the outside student loan servicers that it pays to handle borrowers’ accounts, kept pursuing the debts and even garnished some students’ tax refunds and wages. The department’s loan servicers sent at least 16,000 Corinthian borrowers bills for payments they did not actually owe. The students’ lawyers asked the court to halt those collections and punish the department for its actions.

In a response to scathing criticism from Senator Elizabeth Warren over her handling of the debt collection, Ms. DeVos wrote on Twitter this month: “Loan servicers made an error on a small # of loans. We know & we’re fixing it.”

Magistrate Judge Kim made it clear this month that she believed the department had acted badly. “I’m astounded, really,” she said during a fiery hearing. “I feel like there have to be some consequences for the violation of my order 16,000 times.”

In her ruling on Thursday, Magistrate Judge Kim wrote that the department had made “only minimal efforts to comply” with her order, and that it had “harmed individual borrowers who were forced to repay loans.” She also ordered the Education Department to file monthly status reports detailing its compliance.

The Project on Predatory Lending said that more than 3,000 borrowers made payments that they were not, in fact, required to make. More than 800 students have had their credit reports tarnished, and 1,800 had their wages garnished or tax refunds seized. More than 1,100 remain in limbo because the department has not yet confirmed whether they are in the correct repayment status.

The department has essentially stopped evaluating borrower defense claims — leaving borrowers in limbo, sometimes for years — while it waits for the courts to resolve its appeal. The agency had 210,000 pending claims awaiting a decision as of June, up from the 106,000 claims it had sitting in its queue a year earlier.

In August, the Education Department rewrote its rules for the borrower-defense program, making it significantly harder for borrowers to qualify. The new policies will apply to federal student loans made from July 2020 onward.


You can read the full article by Erica L. Green and Stacy Cowley here

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Erica Green & Stacy Cowley

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