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Students who’ve been scammed by their schools are being illegally cheated again — this time out of the loan cancellation that they’re entitled to, a new lawsuit alleges.
A group of student-loan borrowers filed a class-action lawsuit Tuesday accusing Secretary of Education Betsy DeVos and her department of illegally limiting the amount of relief student-loan borrowers who were misled by their schools receive.
At issue are former students’ claims under the “borrower defense rule,” a law that allows borrowers who were defrauded by their colleges to have their federal student loans cancelled. The Department of Education implemented a version of the rule last year, which uses earnings data to determine the amount of harm a borrower experienced and provide relief accordingly.
In some cases, borrowers who the agency agrees were lured by false promises into taking on high levels of student-loan debt are having just 10% of their loan balances cancelled, the lawsuit alleges.
The borrower defense rule is “supposed to be about cancelling debt and providing appropriate relief to people who have been cheated,” said Toby Merrill, the director of Harvard Law School’s Project on Predatory Student Lending, which is representing the students. The partial relief version of the rule that the Department of Education is currently using is “so clearly not designed for that,” Merrill said.
A battle spurred by graduates of a defunct for-profit college chain
The lawsuit is the latest chapter in a years-long battle over this provision. Though on the books since the 1990s, the borrower defense rule was rarely used until 2015, when former students of the now-defunct for-profit college chain, Corinthian Colleges, began clamoring for relief. Under pressure from activists and debtors, the Obama administration established a process that borrowers who were misled by their schools could use to apply for debt cancellation.
“ Secretary of Education Betsy DeVos has said the agency wouldn’t ‘tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief.’ ”
In the months and years following, thousands of students who attended Corinthian and other for-profit colleges sent in applications claiming they were lured into taking on debt by promises of job placement, credit transfer and other vows that never came to fruition.
The Department of Education under DeVos has tried to avoid implementing the Obama-era version of the rule, arguing that it provided too broad relief and unnecessarily targeted for-profit colleges. In announcing the version of the rule at issue in this lawsuit DeVos said the agency wouldn’t “tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief.” (The department did not immediately respond to a request for comment on Tuesday’s suit).
‘This formula was engineered to give the least possible relief to borrowers.’
But DeVos and her department have faced several lawsuits over this approach. The agency proposed to settle a suit in April that accused the department of illegally stalling its decision on borrowers’ claims. In 2018, a judge ruled that the department was illegally delaying implementing the Obama-era version of the borrower defense rule. That same year a judge also ruled that an earlier scheme for establishing partial loan relief illegally violated borrowers’ privacy.
Congress passed bipartisan legislation earlier this year that would have required DeVos to implement an Obama-era version of the rule. President Donald Trump vetoed the legislation last month.
The current version of the rule, which was published in December 2019, relies on earnings data to determine the amount of relief to which a borrower is entitled. The formula compares the median earnings of graduates of a borrower’s program to those of comparable programs across the country. A borrower only receives full debt relief if the median earnings of their program is in the lowest 2.5% of comparable programs.
“This formula was engineered to give the least possible relief to borrowers,” Merrill said.
By solely using similar programs as a basis for comparison, the rule uses as a metric the earnings of other mostly for-profit college students who may have been subject to similar harm, Merrill said. “If the truth is there was pervasive wrongdoing and misrepresentation, the fact that everyone was lied to doesn’t excuse that,” Merrill said.
In addition, the rule fails to take into account other factors that would be key to determining whether a borrower was harmed by their school, including the amount they borrowed. The focus on earnings, is “trying to measure a sense of economic security or well-being,” Merrill said. “That of course depends on other things, but most obviously relevant here, is how much debt you have.”
One plaintiff borrowed $25,000 after she was told her credits would transfer
Sammia Pratt, one of the plaintiffs in the suit, borrowed over $25,000 to attend Florida Metropolitan University, a for-profit college that later became part of the Corinthian Colleges chain. Pratt, who had already spent some time as a student both at Clark Atlanta University and University of Central Florida, enrolled at FMU with the intention of completing some of the core coursework for a biology degree and then transferring back to UCF, according to court documents.
“Enrollment specialists” at FMU allegedly assured Pratt that the credits she earned at the school would transfer easily to UCF or other Florida schools. They also allegedly promised Pratt access to career placement help if she completed her degree at FMU.
After learning that her credits actually wouldn’t transfer to University of Central Florida, Pratt decided to continue on at FMU because she’d already invested time and money in the degree. Once she graduated in 2003, Pratt also discovered that the job placement assistance she’d been promised wasn’t available. Career counselors directed her to publicly available online job boards, the suit alleges.
Eventually, through her own contacts, Pratt was able to find work in her desired field, but she’s removed FMU from her LinkedIn profile and resumé after learning that it raised questions among potential employers, the lawsuit alleges. Despite receiving little benefit from her education, Pratt, who is the sole breadwinner for herself and her four children, remains deep in debt from her time at FMU, according to court documents. The department cancelled only 10% of it.
