DeVos Halts Partial Debt Relief Policy After Judge Slams Procedures

WASHINGTON — Education Secretary Betsy DeVos has temporarily halted relieving the debt of some student borrowers who were defrauded by the now-defunct Corinthian Colleges, after a federal judge found her department misused earnings data to calculate loan forgiveness.

In response to a court order last week, the Education Department said that it would grant a temporary postponement of loan payments for Corinthian students in lieu of federal debt-relief claims. It also said it would stop collection payments for four students who sued the department over its new formula for determining how much debt they would have to repay.

The halt came after Magistrate Judge Sallie Kim of U.S. District Court in San Francisco found that the department had violated the Privacy Act by sharing student borrower information, such as Social Security numbers and birth dates, with the Social Security Administration to obtain earnings data. The judge ordered the Education Department to end the practice and its collection of Corinthian student debts.

In December, DeVos announced a new system to manage the thousands of students who filed so-called borrower-defense claims after several for-profit colleges began imploding in scandal in 2015, leaving students saddled with debt and tarnished degrees. The department began dividing borrowers according to a tiered system of debt relief, based on whether they had gone on to find gainful employment.

Kim’s ruling resulted from a class-action lawsuit filed by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and the group Housing and Economic Rights Advocates, which challenged DeVos’ partial-relief system shortly after it was announced. They argued that the new policy was arbitrary, capricious and illegal.

While the plaintiffs cheered the judge’s order, they maintained that the department has already illegally granted only partial relief to thousands of students and has left thousands more in limbo. Another hearing is scheduled for next week to determine whether the department will be required to grant full relief to all students.

“The court has already ruled that the Department of Education must immediately stop using its illegal partial denial rule,” said Eileen Connor, litigation director for the Project on Predatory Student Lending. “Apparently the Department of Education will go to any lengths to side against defrauded students.”

In her ruling, the judge ordered the department to halt the use of its “average earnings rule,” which has been used to determine borrower-defense claims since December.

But the order did not rule on the department’s ability to issue partial relief, only that its methodology was illegal.

The Education Department made clear in its response to the ruling that it still believes that using earnings data is the best method for determining how much relief students should receive from the federal government.

“We’re encouraged that the court recognized the secretary’s discretion to establish a borrower defense claims process that determines compensation based on harm incurred by the borrower,” said Liz Hill, the Education Department’s spokeswoman.

The department told the judge that it would continue assessing the validity of borrower-defense claims — as of April 1, there were 147,000 total claims filed, and 99,000 claims pending — and explore ways of using earnings data to “assess educational value in a manner that would not implicate the Privacy Act.” Education Department officials proposed options such as using publicly available data, or requesting earnings information from borrowers themselves.

DeVos has defended the new system a reversal from an “all or nothing” approach to loan forgiveness, by relieving students of debt based on whether they received any educational benefit from their institutions. She said the new calculation would allow claims to be adjudicated quickly and “protects taxpayers from being forced to shoulder massive costs that may be unjustified.”

Students whose current earnings are less than 50 percent of graduates from a comparable education program would receive full relief. Those whose earnings are at 50 percent or more of their peers will receive “proportionally tiered relief to compensate for the difference and make them whole.”

According to the judge’s order, the department identified 79 Corinthian programs and submitted information identifying the names of 61,717 former Corinthian students to obtain earnings data. More than 10,000 students have received partial relief, attorneys said.

In the case of the four plaintiffs, the judge found that the students “have shown irreparable harm because the economic harm they are suffering affects their ability to pay for life’s most basic necessities.”

Alina Farajian was promised that she could attend Everest College to become a medical assistant, even though she had a learning disability. She was told that the college would help her get a job, and the brochures boasted high placement rates. So she and her mother borrowed $15,000.

The only job that Farajian was able to get in her field was a one-month temporary position. She now drives a Lyft and nets $250 a month. The department forgave 30 percent of her loan.

Jennifer Craig was sold on the job-placement rates at Everest College in California, where she borrowed $9,019 to study medical insurance and billing. Although she was able to graduate, she never received a diploma because the school closed. With no diploma and only one year of training, she was not able to find work in her field. The department forgave 20 percent of her loan.